It sounds familiar. Not being able to wake up in the morning and then quickly getting to work. There, you try to take care of everything. In the afternoon take the kids to the school clubs, do sports, have beer with friends, shopping, cooking, dinner, household...

When you finally have a moment for yourself, you're happy to have a break. You do not care about money at that time, and you say you will think about it tomorrow. However, tomorrow it will be the same old story.

Me: What if I told you now that postponing the beginning of your savings cost you 25,000 € over the last year?

You: Really? [shaking your head in disbelief] This can’t be true?

Me: Indeed, it is.

You: No, I don't believe that, that is impossible. I would only send you a hundred a month anyway.

Me: Yes, by not sending 100 € a month for a year, you have lost 25,000 € on your pension. Do you have a minute, so I could show you how it is possible?

Sometimes, I feel that postponing decisions (procrastination) is a national sport in Slovakia. And this is also the case with finances. When doing day-to-day shopping, you can materialise your wish by simply buying the thing whenever you need it, in case of investing, you save up for things that you will buy in the future, and your demand is not immediate.

Many of my friends have been postponing the decision to start saving for a very long time and still did not manage to get to it. Therefore, I decided to calculate how much you lost by postponing the start of investment for the last year (2019).

Imagine that you would open a Finax account last November and started saving for retirement. You already have some basic experience with investing (e.g. II. pension pillar) and since you have enough time until retirement and you do not avoid risk, the robo-advisor algorithm will offer you a 100% equities portfolio.

For clarity, I choose the following options:

1. you have decided to invest 100 € monthly
2. you have decided to make a lump sum investment of 10 000 €.

The only variable will be age. In the following examples, I will take into account three age categories - 24 years, 34 years and 44 years.

So, if you started saving 100 € a month in Finax one year ago, today you would have had 1311 € (after deducting all fees). In case you deposited 10,000 €, your net profit would have been 1504 €. 

You: Well, you see, I didn't lose € 25,000 on my retirement. We are talking about a few euros, in the case of regular savings I only lost 111 €.

Me: Yes and no. You must be aware that this money will continue to work for you for the next X years (40, if you're 24 years old).

You: How can money work? Only people are able to work.

Yes, last year the stock markets have been doing very well, despite many sceptics saying that the crash is inevitable. For the last hundred years, stocks have been growing at an average rate of 10% per annum, so the money you have invested and appreciated will continue to appreciate in the long term (for more detailed explanation, read more about compound interest).

Finax's expectations are somewhat lower due to better market efficiency in the future, but your saved 1311 € should bring you additionally approximately 105 € next year. Year after that it will be 115 euros and in the last, 40th year, 1950 €.

Let's see now how much more would you have saved for retirement (when you reach 64), if you started saving 100 euros today (a year later).

Only those 1311 euros would appreciate, at a 40-year investment horizon in 100% equities portfolio, to 28 022 euros. I know many of you are older than 24, but at any age, the resulting appreciation is still a nice pile of money.

If you kept the money in your bank account, you would not earn anything because of the current interest rates. On the contrary, the real value of your 1200 euros would decrease due to inflation and, when you reach the retirement age, the real value will be even lower than today. Let's see, what will be the value of money, converted to today's prices, if you decide to keep the money in the bank in comparison to investing.

Somewhat worse end up those, who would decide NOT to invest their lump sum deposit of 10,000 euros, either because they didn't bother to look into it or were too afraid to invest at the top of the markets (if it is the second case and you're afraid to invest when the markets are at the top, check out this article).

Over the past year, you would earn 1504 euros on the return from 10,000 euros. The following table shows the effect of not achieving this return and the subsequent absence of reinvestment of this return for the next 40, 30 and 20 years. This is the best way to showcase the effect of postponing a lump sum investment by one year.

The decision to keep your money in a bank account for the past year and not investing it has cost you a few tens to hundreds of euros on return over the past year, but if we also include future returns in it, it's a really big pile of money.

Unfortunately, with Rado, we personally know dozens of people, who have been predicting a market crash or have postponed investing for years. When I see, how much have people lost over the past year, I don't even want to imagine their lost profits.