Cost of delay

If your target is to accumulate $2,000,000 over a given period, let’s say by your 50th birthday, and today, you turned forty years of age. The required saving level, assuming zero investment growth, would be £16,666.66 per month.

If you put this off until your 41st birthday, you would be required to save £18,518 per month. In this simple case, we would place the figure £1,851.34 per month, the difference between the two numbers, as the cost of delay.

This gets interesting when you start applying compound interest to the same numbers. With the same above values and achieving a 6% per year net return on average, you will be left with these two different numbers. $12,285 or $14,102

OK, perhaps this is not HOT news for you, but how does this delay affect your savings by taking an apathetic approach or getting caught in the ‘Sunk Cost Dilemma” phycology?

Let’s set out some examples.

Before we set out the choices, let’s level up the playing field as much as possible.

Let’s assume that the pseudo portfolio invested will perform at a gross of 7% per year.

• Scenario A ) You have $150,000 in a portfolio with total fees of 5% per year, the net capture being 2% growth in your portfolio, which will end up $183,119.14 after ten years.
• Scenario b) You have $150,000 in a portfolio with a total fee of 2.1% per year, the net capture being 4.9%. You will end up with $244,119.62 after ten years.

That’s a difference of $61,999.48 in just ten years.

You get this. It’s a no-brainer. But you put off doing this for one year, so what? Well, in that year, you lost $8,581.74

Now that’s a severe cost of delay.

Our advice:

Take action immediately
Measure and monitor prudently.