More Straight Talk on Investing

14Time Is Everything

After nearly 40 years in the investment profession, I continue to be amazed by the miracle of compounding. My first lesson in compounding came when my father, a banker, helped me open a savings account. Years later, I encountered it again as an economics student in college when I read Paul Samuelson's classic textbook, Economics. I rediscovered the wonders of compounding once more when I joined Vanguard in 1982.

Test your own knowledge of compounding with this exercise: If an 18-year-old made a single IRA investment of $6,000 and allowed that money to sit untouched, compounding at 8% a year, how much money would she have after 50 years? Venture a guess and then turn to the end of this chapter to see the answer. I think you will be astonished. I still am.

Most people underestimate the value of time in an investment program and might not realize that it picks up its greatest momentum toward the end. At the halfway point in the example above—after 25 years in the growth of our $6,000 investment—the value is only $41,091. The account gains half of its ending value in the last 9 years.

In this chapter, I'll discuss how you can make time work for you. And if you're one of the those folks who did not get as early a start on investing as you may have wished, I'll offer some tips on how to make the most of the time that's available to you.

Make Time Your Ally

If you start saving when you are young, time will be your greatest ally. Year after year, your investments ...