Don't Panic If You Start Investing at 40: Do This Instead

0:00So, let's take two people, Matthew,

0:02who's 20, and Andrew, who's 40. And on

0:05the same day, they both decide that

0:07they're going to start investing £500 a

0:09month for the very first time in their

0:12lives. Exactly the same day of the

0:14month, exactly the same amount, all that

0:17sort of stuff. The only difference

0:18between these two guys is 20 years of

0:21age. So, let's run that through and see

0:25what it actually does because the maths

0:27on this is the bit that isn't

0:28particularly complicated. What we're

0:30going to say is that they're going to

0:31both keep going until they are 65. And

0:35we're going to assume a roughly 7% a

0:37year average return.

0:39>> [snorts]

0:40>> Matthew is investing for 45 years. Out

0:43of his pocket, he puts £270,000.

0:49And by the time he gets to 65, he's

0:50theoretically looking at something in

0:52the region of 1.9

0:55million pounds. Andrew is investing for

0:5825 years. He puts in £150,000

1:03of his own money. And he ends up with

1:06roughly £450,000.

1:09So, what you conclude from this is that

1:12Matthew contributed less than double

1:14what Andrew did, and he finished with

1:16nearly five times the money.

1:20Crazy. Those 20 years at the front end

1:23were worth about a million and a half

1:26quid. And that's the chart that you've

1:28probably seen

1:30a thousand times before, isn't it? I'm

1:32sure I've pretty much run through

1:33something similar on this channel

1:35before. It's the one where the line goes

1:37near enough vertical at the end and the

1:39compound growth kicks in, and the other

1:41one just ambles along at the bottom just

1:44looking a bit rubbish. I guarantee

1:46you've watched a video, a hundred

1:48videos, before mine showing you exactly

1:51this. And look, if you're watching this

1:53and you happen to be one of the 99.9%

1:57of people who didn't become some avid

2:00investor at age 20. If you left it until

2:03your 30s or even your 40, then you're

2:05probably thinking, well, what's the

2:07point? Right? Why even would I bother?

2:09Because it looks quite clear, doesn't

2:12it? That unless you start early and take

2:15advantage of the miracle that is

2:16compound growth, you're pretty much

2:18doomed from the start.

2:20Right? Well, if that is you and that's

2:22genuinely where your head is at and

2:24that's genuinely genuinely what you're

2:25thinking to yourself, then there's one

2:28thing I need to understand about that

2:31whole comparison that we've just run

2:32through. And it might just change your

2:34perspective, hopefully, on the whole

2:38thing.

2:39What I've just run through is

2:42oversimplified. It's oversimplified,

2:44right? In my experience of working with

2:47hundreds of people, it couldn't be

2:49further away from what a real investment

2:52journey actually looks like. So, the

2:55real question isn't what happens if you

2:57invest 500 pounds a month at 20 versus

3:0040. The real question is what actually

3:03happens to Matthew in those 20 years

3:06before he arrives at the same spot where

3:08Andrew is standing today. Matthew starts

3:12at 20 and he's buzzing, right? But, he's

3:16not really investing.

3:19He's playing. He's buying individual

3:21companies because someone at work said

3:23something in the kitchen one time about

3:25some exciting stock. He's got a chunk of

3:28it in something speculative because it

3:30had a brilliant year the year before.

3:32And he's checking the app about four or

3:34five times a day. And I'm not having a

3:37go at him for doing any of that because

3:39I did exactly the same thing at his age

3:41and I'm pretty sure you would do the

3:43same, too. We've all had that bit at the

3:45start where the story and the journey is

3:49more exciting than the actual process

3:52and the actual maths, right? You don't

3:55know what you don't know at that age, do

3:57you? Doing it properly is

4:01boring, right? And at 20, you don't want

4:04boring. You want exciting, don't you?

4:06So, look, he'll end up chasing a few

4:08trends. Maybe he has a go at trading for

4:118 or 9 months because he reckons that he

4:13spotted something that the rest of us

4:14haven't. And then, he changes jobs.

4:18Money gets tight for a little bit, and

4:20the direct debit that's going into his

4:21investments gets cancelled. And that's

4:23him done for another couple of years,

4:26effectively. Then, at 30, he sells the

4:30whole thing, every single penny of it,

4:32to put down a deposit on his first

4:34house. And he gets married a couple of

4:36years later after that.

4:38And from there,

4:40he's going to be investing on and off,

4:43doing little bits here and there,

4:44nothing for 6 months, bit more, bit

4:47less, bit bit part all over the place,

4:49never really having decided what any of

4:53it was actually for.

4:56By 35,

4:58he's kind of now settled into a point

5:00where he's kind of cracked it. He knows

5:02exactly what he's doing now, right?

5:04Passive, consistent, boring, all that

5:07sort of stuff. But by 35, he's also got

5:10two small children, a bigger house, a

5:12bigger mortgage, and a cost of a cost of

5:14living that's gone through the roof.

5:17So, he knows precisely what to do, but

5:20he hasn't got a huge amount of spare

5:21ammunition and resources to do it with.

5:24So, look, by 40, let's look at what

5:27Matthew has actually got. Well, he's got

5:3020 years worth of experience, which is

5:32brilliant, right? He's got the scar

5:33tissues to show it. He knows what he

5:36would do if things were to unravel a

5:38little bit or if there was a crash, and

5:41all that sort of stuff. He's completely

5:43solid in his own mind about how he wants

5:46to invest and how it should be working.

5:49But, in terms of the actual number on an

5:52actual statement in terms of a head

5:55start,

5:56he's not that far ahead. More often than

5:58not, and I would genuinely bet on this,

6:02he probably does not have a meaningful

6:04head start on Andrew, who is starting

6:07from scratch this morning

6:10with Matthew having caught up. Now, the

6:12valid objection you could say that

6:15Andrew has to go through all of that

6:17journey, too. The same 20 years of

6:19mistakes, the same chasing, the same

6:20faffing about. And the fact that he's 40

6:23doesn't sort of magically exempt him

6:25from any of that. And that is genuinely

6:28fair, to be honest with you.

6:29It's not an unreasonable thing to say

6:32that that's an important part of all of

6:33this. But look,

6:35generally speaking,

6:38a 40-year-old is a slightly different

6:40annual animal to a 20-year-old, right?

6:43You're often more settled. You've got

6:45mortgage and responsibilities, and

6:47you've probably been stung by enough

6:49things in your life to be a little bit

6:50more careful with stuff that actually

6:52matters. You're far less likely to make

6:55kind of short-headed emotional decisions

6:59with a load of your money because of

7:01something someone told you at a barbecue

7:03or you read in the newspaper. I mean,

7:05that on its own tends to strip out a big

7:07chunk of the damage that Matthew did to

7:09himself in his early 20s, effectively.

7:12And then there's the bit that gets

7:14skated over completely, which is your

7:17income.

7:18You are typically walking into your peak

7:20earning years from about 40 onwards,

7:22right? The promotion, the job move,

7:24the mortgage shrinking in real terms,

7:27blah blah blah blah blah, all of those

7:28things. So, the actual ammunition that

7:32you've got to fire at this thing is far

7:35more greater than anything Matthew had

7:38at 22 on his first proper salary.

7:41The 20-year-old has all the time in the

7:43world and almost nothing to put into it.

7:47At 40, you've got the money and less

7:50time to run it. And of those two

7:53problems, I genuinely know which one I

7:56would rather have because

7:57you can do something at sort of about

8:00the amount going in that you're paying

8:02into. You can't do anything whatsoever

8:05about the fact that you're not 20,

8:07right?

8:09Here's the other thing that I see

8:11constantly as well, though.

8:13Andrew, at this point, starting at 40,

8:15is panicking, right? He knows he should

8:18have started earlier. He knows he's late

8:20to the game, and that genuinely eats him

8:23up a little bit. And that fear is not

8:26actually misplaced, right? It's true.

8:29But, what it does is it makes him behave

8:32in a way that Matthew kind of never

8:35really had to. See, the people who I

8:37worked with who start a little bit later

8:40are almost always the most kind of

8:44committed to it, right? They're

8:45indoctrinated. They're panicking.

8:47They're scared because they're behind.

8:48So, they invest more. They're more

8:50disciplined. They don't muck around with

8:53speculative nonsense. And crucially,

8:56they don't stop.

8:59And for me, that is the most underrated

9:01thing about starting at 20 because

9:04Matthew has kind of had it easy for two

9:06decades and has never really had like a

9:09reason to take it seriously and be

9:12stressed.

9:13Now, I'm not saying that is true of

9:15everybody, but it's just something that

9:17I've noticed time and time again. So,

9:21look, let's put a number on the thing

9:24that you can actually control.

9:27Andrew, at £500 a month for 25 years on

9:31the same 7% assumption that we used

9:33earlier, gets to that figure of 405,000.

9:37If you can get that to a thousand pounds

9:39a month, he's at about 810,000

9:43pounds. At 1,500

9:45pounds a month, that is roughly 1.2

9:49million pounds.

9:51And if you wanted to land exactly where

9:53Matthew landed at that 1.9 million, he'd

9:57need somewhere around 2,340

10:01pounds a month, which for most people

10:04isn't happening, right? I'm not going to

10:06sit here and sort of pretend otherwise,

10:08but

10:10do you see what's happened here? When

10:12you've only got 25 years instead of 45

10:15years, the size of the contribution

10:18starts doing the job that time used to

10:20do. Matthew's advantage was time, and

10:23time is free. At 40, your advantage is

10:27the amount, it's the ammunition, and

10:28that's the one thing you can control and

10:31essentially manage moving forward. Now,

10:35the other thing that I hear a lot is

10:37this. I'm 40. I haven't got a lot of

10:40time to be in the market properly. I

10:42should probably be just playing it safe,

10:44keeping my cash under the mattress, and

10:46going from there. And look,

10:48I understand where that comes from,

10:51effectively, but

10:5340 to 65 is 25 years. And for me, that

10:59isn't a short time horizon at all. And

11:01it doesn't even stop, really, as a cliff

11:04edge at 65, because most people in

11:07retirement, that retirement date isn't

11:10some cliff edge, it's not some date

11:12where you just click a button, sell

11:14everything, and stick it under the bed.

11:16Some of that money in retirement might

11:18not get spent until you're in your 80s

11:20or late 80s, or the day before you die,

11:22theoretically. So, what that means is is

11:25that part of that pot could

11:27theoretically be invested for 40 years.

11:30So, being properly diversified and

11:33taking a sensible amount of risk for

11:36your circumstances and objectives still

11:39absolutely matters. And arguably, I

11:42would say it actually matters more

11:44because you've got fewer years to

11:46recover if you kind of get it badly

11:48wrong or just leave cash lying wishing

11:51in the bank. But look,

11:54what really doesn't help is the panicked

11:58version of all of this. The lump sum

12:00into something speculative because you

12:02feel behind and you want to try and race

12:05to catch up and get back that 20 years

12:07in like two or three years, all that

12:09sort of stuff. That isn't catching up.

12:13That's just like Matthew at 22 with a

12:16bigger bank bank balance and a lot more

12:18to lose. So, the thing for me is this,

12:20right?

12:2140

12:23isn't too late.

12:25And I'm not going to insult you by

12:26pretending that it costs you nothing

12:29either. Because those 20 years were

12:31worth something. And we've just seen

12:35roughly what you get for those 20 years

12:38earlier.

12:39But what it actually means is that the

12:41plan from here has to be more deliberate

12:45than the 20-year-olds ever have to be,

12:47right? Matthew can afford to be sloppy,

12:51right? He could start and stop, cashed a

12:53lot in at 30, spent a decade without

12:56actually paying attention, and in theory

12:59still kind of get away with it, right?

13:00Because time was doing the work whether

13:04or not kind of like he showed up

13:05regularly and was

13:07essentially doing it properly. So, at

13:1040, it has to be on purpose. You haven't

13:14got that luxury.

13:16It means putting it in the right

13:17account. So, in your pension by salary

13:21sacrifice or in a stocks and shares ISA

13:22or whatever it is that's right for your

13:24situation. So, the tax relief and the

13:27match can kind of carry an absolute

13:29chunk of that for you. It means being

13:31sensibly diversified rather than trying

13:34to make everything speculative and catch

13:37up in one go. And it means leaving the

13:40thing completely alone for 25 years

13:43while it does something so

13:46boring you forget it's even there.

13:49And that last one is the hard bit

13:52genuinely.

13:53It's really really really hard. No, it

13:55is. It's the one that actually

13:58is the hardest but truly actually

14:01decides where you'll end up eventually

14:04because a 40-year-old who picks a decent

14:07fund and a decent amount and genuinely

14:10doesn't touch it until 65 more often

14:12than not truly will end up in a far

14:16better place than a 20-year-old who had

14:18every advantage going and spent two

14:22decades mucking around with it, right?

14:25But a huge question that you might be

14:27asking yourself after that is this. I've

14:30got some money to invest.

14:32Am I actually better off putting it all

14:33in as one sum one lump sum or spreading

14:36it out a little bit to remove some of

14:38the risks with market volatility? Well,

14:40if that is the case and if that is what

14:42you're thinking, I really think that you

14:44should watch this video here next

14:46because I'm going to go through this in

14:48detail so that you can kind of make up

14:50your own mind and make your own decision

14:52on how to approach that question. So,

14:56give it a click and I'll see you there.