Investment Iron Law III: Invest Sooner Rather Than Later#
Invest first, then wait for the opportunity,
rather than waiting for the opportunity to invest.
Procrastination: The Primary Cause of Financial Failure#
The mentality of “things will work out” and a passive approach to financial management is the most common obstacle to personal finance. It’s also the main reason why many people struggle to achieve financial independence by retirement. Many individuals adopt a passive attitude towards financial planning, believing that things will naturally fall into place. As they age and witness the rapid growth of others’ wealth, they finally realize the importance of financial management. However, by then, time is often limited, the power of compound interest cannot be fully utilized, and it becomes too late, even if they understand the principles of financial management.
Financial Management Is Not Just for the Middle-Aged
Many young people believe that financial management is something for middle-aged or wealthy individuals, and that it’s not too late to worry about it in old age. Here, I want to remind readers that the ability to build wealth through financial management has little correlation with the amount of money one possesses, but a significant correlation with the length of time invested. People often reach middle age, facing retirement with some savings, and only then start thinking about preparing for their financial future. However, at this point, it’s often too late. The reason is insufficient time to allow compound interest to work its magic. Turning small amounts of money into substantial wealth requires at least two to three decades. Recall the previous example: 10 years is not enough time to see significant growth. A much longer period is needed for remarkable results.
Since we know that building wealth through investment requires investing in high-return assets and leveraging the long-term effects of compound interest, our approach, besides enriching our investment knowledge and skills, should involve immediate action. Financial planning should start as early as possible, cultivating patience and a long-term perspective.
The reason for many financial failures today is the lack of knowledge about how to utilize funds effectively to achieve the goal of making money work for you and building wealth through investment. This is a flaw in our education system. Schools dedicate significant time to teaching students how to earn a living but fail to teach them how to manage their earnings. College students exploring financial management through stock investment are often viewed as engaging in speculative and greedy behavior. In a future dominated by finance, the lack of proper financial knowledge not only erodes the dream of wealth accumulation but also harms the financial operations of businesses and the overall prosperity of society.
Don’t delay your financial plan using the excuse of uncertain future price trends. Who can predict when real estate or stock prices will rise? Past price surges always lead to regret for those who missed out. There are no clear signs before prices start to rise, and no one will announce it with fanfare. For investments that are unpredictable in the short term but offer high expected returns in the long term, the safest strategy is to invest first and then wait for the opportunity, not the other way around.
Warren Buffett Started Investing at Age 11
I believe every business school graduate should sign a contract pledging to make no more than 20 major decisions in their lifetime. If your career spans 40 years, that’s one decision every two years.
Warren Buffett, ranked the second richest man in America by Forbes magazine in 1996, is widely regarded as the god of stock investment. He claims that more than half of his net worth is attributed to about ten investment decisions. He believes the key to investment is to buy stocks of good companies at good prices and hold them for the long term. As long as these companies continue to perform well, don’t sell their stocks.
Buffett, with a net worth of $9 billion, amassed his fortune entirely from the stock market. At 68, he held an MBA from Columbia University and was the son of a stockbroker-turned-congressman. Buffett made his first investment at the age of 11, putting his and his sister’s small savings into the stock market. Initially, he lost money, and his sister criticized him, but he insisted that it would take three to four years to see profits. His sister sold her shares, while he held on, ultimately proving his point.
At 20, while studying at Columbia University, Buffett immersed himself in finance books and insurance industry statistics while his peers focused on leisure activities. Lacking capital and disliking borrowing, he often sold stocks prematurely to reinvest in others. Despite the limitations of his funds, his wealth continued to grow.
In 1954, he joined Professor Graham’s investment firm. Two years later, he raised $100,000 from family and friends and established his own firm. After its assets increased thirtyfold, he dissolved the company in 1969, returned the partners’ money, and focused on his own investments.
He is a true stock market tycoon and has been America’s richest man for years. Other wealthy Americans, like Bill Gates and Henry Lea Hillman, built their fortunes through businesses, while Buffett focused on stock investment. As long as the US economy continues to grow, his wealth will continue to increase.
Buffett’s immense wealth, accumulated through nearly 60 years of investing, is a testament to the power of compound interest. His early experiences with trial and error played a crucial role in honing his investment acumen.
Financial management is like farming.
A bountiful harvest in the future depends on diligent sowing and watering today.
Start Investing Today#
If time is an indispensable element of financial management, the best strategy is to act now. Start managing your finances today!
Don’t Wait Until Your Hair Turns White
The earlier you start investing, the sooner you’ll achieve your financial goals and enjoy the fruits of your labor with your family. Furthermore, starting early maximizes the time for compound interest to work, requiring smaller initial investments and making financial management easier and more enjoyable.
Starting later requires significantly higher monthly investments to reach the same goals. The following table is based on these assumptions: an annual return of 15%, a target amount of 100 million yuan, and a retirement age of 65. It calculates the required monthly investment for different starting ages.
Monthly Investment Required to Become a Millionaire, by Starting Age
| Starting Age | Monthly Investment (Yuan) |
|---|---|
| 20 | 2324 |
| 25 | 4684 |
| 30 | 9458 |
| 35 | 19863 |
| 40 | 39163 |
| 45 | 81348 |
| 50 | 175143 |
| 55 | 410428 |
| 60 | 1235959 |
The table clearly demonstrates that youth is a valuable asset in wealth accumulation. The younger you are, the better positioned you are to achieve the dream of building wealth from small investments. Starting financial planning in old age requires monthly investments that are beyond the reach of most people. In short, start saving for retirement early. Don’t wait until your hair turns white; time waits for no one.
Your future financial well-being depends on your actions today. Don’t let hesitation hold you back. Follow the principles outlined in this book, invest your funds in the stock market, real estate, or other high-return investment vehicles, and over time, you too can become wealthy.
1. The earlier you start investing, the longer the time for compound interest to work, and the sooner you’ll achieve your wealth goals.
2. Only young people can dream of building wealth from small investments.
3. The best time to start managing your finances is as early as possible.
Jeffrey Koo Jr.’s Path to Wealth
Jeffrey Koo Jr., the eldest son of Jeffrey Koo Sr., chairman of Chinatrust Commercial Bank in Taiwan, and current Vice President of Chinatrust, is actively uniting the third generation of Taiwanese entrepreneurs. He organized a luncheon club primarily for the third generation of prominent Taiwanese business families to network and exchange information. To expand its influence, Koo Jr. has also strengthened the luncheon club’s connections with Southeast Asian politicians and the second and third generations of overseas Chinese business families.
Koo Jr. is a representative figure among Taiwan’s third-generation entrepreneurs and the heir apparent to his father. Many assume his wealthy background afforded him a comfortable financial situation. However, Koo Sr. instilled frugal habits in his children and didn’t provide excessive allowances. Koo Jr. had to find his own ways to become financially independent.
Sent to Japan for his education by his father, Koo Jr. returned to Taiwan for university after graduating high school with only his accumulated New Year’s money, around NT$100,000, in his bank account. In early 1987, as the weighted stock price index climbed from 1,000 points, many people invested in the stock market. Koo Jr., then a junior in college, followed suit, investing all his savings. His grandmother’s daily routine of asking him to recite the stock market index further influenced him. His frequent interactions with entrepreneurs from various industries provided him with business opportunities, enabling him to grow his NT$100,000 capital to NT$10 million during the bull market.
When the stock market crashed from over 10,000 points in 1990, he was already pursuing his Master’s degree at the Wharton School of Business in the US. His father, hoping for him to join the family business sooner, disapproved of his overseas studies and threatened to withhold financial support. Koo Jr. confidently assured his father that he could support himself financially. He successfully completed his studies in the US and even bought his dream car, a Porsche, with his own money. Koo Jr.’s knack for investment and financial management from a young age made his dreams a reality. If you aspire to be wealthy, start now!
Youth Is the Greatest Asset for Financial Success
Successful people have a habit: they delay, but don’t give up, the enjoyment of the fruits of their labor.
In Louis Cha’s novel The Book and the Sword, the Qianlong Emperor tells his sworn brother, “I don’t envy anything about you except your youth.” Even the emperor envied youth.
Similarly, from a financial perspective, youth is the most important asset. I often tell college students, “Young people, your name is wealth!” The compound interest formula clearly shows that time is money, and youth is wealth.
The compound interest chart provides a clear roadmap for financial planning: focus on increasing income and saving during your youth and start investing early. Money saved during youth contributes significantly to wealth in old age. NT$10,000 saved in your youth can grow to over NT$2.3 million in 30 years. The same amount saved in old age will only grow to NT$60,000 in 10 years. Whether the statement “Young people, your name is wealth” becomes a reality depends on whether young people manage their finances wisely. Poor financial management, even with the advantage of youth, will not bring wealth.
The prevalent notion among young people today is that it’s fine to indulge in enjoyment while young and worry about financial planning later. This is a misguided perspective. Many young people believe retirement is far off and their funds are limited, so there’s no need to consider investment. They often miss the opportunity to start early.
In reality, starting financial planning in old age, even with some savings, is often too late due to limited time. The correct approach is: investing and managing finances is the job of young people, while managing wealth is the job of old age. However, many young people prioritize immediate gratification, spending their money on sports cars, high-end audio systems, or travel, believing they can enjoy life now and worry about finances later.
If you understand the role of time in financial management, it’s easy to see why such individuals are destined for mediocrity. Countless examples in society demonstrate how prioritizing enjoyment in youth leads to poverty in old age. The key is their neglect of the importance of early financial planning. By the time they realize it, it’s often too late.
As Taiwan’s population ages and smaller family structures become the norm, future generations will rely on their own financial resources for living expenses. Therefore, the concept of starting financial planning in youth becomes increasingly critical.
Youth Is the Best Time for Taking Risks
Young people possess the most valuable asset in financial management - time. Youth is also the best time to take risks because family responsibilities are generally lighter. Young people should embrace a risk-taking mindset because the cost of failure is lower. You can recover from setbacks more easily. Moreover, with limited funds, potential losses are smaller, providing valuable learning experiences. Most importantly, young people have ample time for compound interest to work its magic.
Before 50, one shouldn’t adopt an overly conservative approach to investment and financial management. The best time to learn about financial management is as early as possible. Sound financial judgment comes from experience, and experience comes from mistakes. Since developing good judgment requires making some mistakes along the way, why not gain this experience while you’re young and the stakes are lower? By the time you have more capital, you can apply your honed financial judgment effectively.
Young people should not just spend money but also understand the importance of saving. Start saving, and once you have a few thousand or tens of thousands of yuan, consider long-term, high-return investments, even if they carry some risk.
Some may feel they are no longer young and their current income is low, leaving no surplus for investment. Indeed, older individuals have less time to benefit from compound interest. However, don’t be discouraged. Money can buy time, and you might still have opportunities to catch up. By following sound financial principles, you can achieve unexpected gains. If you are past 50, help your children by sharing these fundamental wealth-building concepts so they don’t miss out on the opportunity to build wealth early in their lives. Instead of giving your next generation money, teach them the knowledge of making money work for them.
1. Youth is the greatest asset for building wealth through financial management. 2. Young people should embrace risk-taking because the cost of failure is lower. 3. Invest when you’re young to maximize the benefits of compound interest over time.
Playing a good hand well is nothing special; playing a bad hand well is what deserves admiration.
Don’t Neglect Financial Management Due to Limited Funds#
Some believe that financial management is exclusive to the wealthy and high-income families, requiring substantial capital to even consider it. Indeed, financial management is about making money work for you. It’s not about turning stone into gold or creating something from nothing, so you need some initial capital. However, what many don’t realize is that the most influential factors on future wealth, according to the compound interest formula, are the rate of return and the length of the investment period, not the current amount of capital or future contributions.
Small Beginnings Can Lead to Great Fortunes
With the right approach, even a small amount of money can generate significant wealth over time, as illustrated in previous examples. Even someone with no initial capital, by investing 14,000 yuan annually, can become a millionaire in 40 years. The principle of investment and financial management is this: understanding how to utilize high-return tools and the long-term effects of compound interest is more important than the amount of money invested.
A common misconception is that financial planning is only necessary after accumulating a large sum of money. In reality, the key factors influencing future wealth are the rate of return and the length of investment period, not the amount of capital. The key to successful financial management lies in maximizing returns and holding investments for the long term. While having more capital can accelerate wealth accumulation, it’s not the decisive factor.
Perhaps you’ve considered investing but dismissed the idea due to limited funds. By doing so, you’ve missed a valuable opportunity to enhance your investment skills. The focus of investment should not be on “how much money is earned” but on “the rate of return” at which money is earned. For example, earning 5,000 yuan on a principal of 100,000 yuan represents a 5% return, which is a poor investment. Earning 2,000 yuan on a principal of 10,000 yuan represents a 20% return, which is a good investment. Over time, the latter will significantly outperform the former. Therefore, the earlier you learn financial management, the better. It allows limited funds to leverage the power of compound interest and create substantial wealth.
Those with Less Should Strive Harder
Some may question how to invest with only a few thousand or tens of thousands of yuan. In today’s developed financial markets, investment units are highly divisible. Around 10,000 yuan can buy a lower-priced stock, and a few thousand yuan can be invested in mutual funds. Real estate is also moving towards securitization. In short, there will be more investment options for smaller amounts in the future. Therefore, any idle funds not needed in the short term, even a few thousand yuan, should be invested.
Are people truly too poor to manage small amounts of money? During the Chang Hwa Credit Cooperative bank run, many ordinary people withdrew hundreds of thousands of yuan. Statistics also show that the average bank deposit is 600,000 yuan, which is more than enough for investment purposes.
Even those with no current savings or expecting limited future income shouldn’t underestimate themselves and give up on financial planning. While wealthy or high-income individuals have a head start, those with fewer assets or lower incomes should understand the principles of financial management and leverage it to compensate for their financial disadvantages, ultimately improving their lifetime financial situation.
Moreover, individuals from humble beginnings and with modest incomes can achieve a greater sense of accomplishment by building wealth through diligent financial management. As the saying goes, “There’s nothing remarkable about playing a good hand well; it’s playing a bad hand well that deserves admiration.” If you truly have no money, find ways to increase income and reduce expenses, save some money, and then start managing your finances. Remember, even a small amount of money is enough to begin. While the path to wealth may be longer and more challenging with limited initial funds, the goal is still achievable, and the journey itself is valuable.
1. Investment and financial management are not exclusive to the wealthy or high-income earners.
2. Those with limited assets or low incomes should leverage financial management to catch up.
3. The amount of money you have when you start doesn’t matter. Less money might even be better, allowing you to experiment with smaller investments initially and gradually increase your investment as you become more comfortable with risk.
4. Leverage other people’s money to accelerate wealth building.