You are using an older browser version. Please use a supported version for the best MSN experience.

How investing $5 a day can lead you to $1 million

CNBC logo CNBC 8/9/2018 Annie Nova

a large mountain in the background© Provided by CNBC

Michael Taylor used to sell bonds for Goldman Sachs. Now he's focused his efforts on making young people understand the importance of investing early.

"We don't teach compound interest math in school," Taylor said. In his new book, The Financial Rules for New College Graduates, along with a YouTube series, he breaks down the concept.

"If you start in your twenties with a couple of reasonable investments," Taylor said, "you can't avoid becoming a millionaire."

However, many young people today put off investing.

More from Personal Finance:

Here's what you need to know about this new 'investor protection' rule

Tax holidays may not be the bargain you think they are

Not checking your credit report comes with risks

The average millennial doesn't expect to start saving for retirement until their late thirties, while half the generation isn't invested in the stock market, according to a new study by TD Ameritrade.

Those findings make Taylor cringe.

He provided an example to illustrate how much can be lost through delaying investing.

UP NEXT
UP NEXT
Say a 55-year-old person invested $5,500 into an individual retirement account with a 10 percent annual return. By the time they're 65, that amount will have grown to $14, 265. Not bad, right? (From 1970 to 2016, the S&P 500's average annual rate of return, including dividends reinvested, was approximately 10.3 percent, according to Bankrate. However, that return is dependent on the market and your investments).

But if a 20-year-old invested $5,500 into an individual retirement account with the same return, that amount would swell to more than $600,000 by the time they're 70. (Although, of course, that amount will buy less when factoring in inflation).

"We have the wrong perception that getting wealthy is impossible," Taylor said. "The hurdle to being a guaranteed millionaire is relatively small, provided you start early."

To be sure, many young people are more worried about paying down their debt than building up their wealth.

The average millennial is $15,000 in arrears, TD Ameritrade found. Student debt is increasingly a problem, with the average borrower paying almost $400 a month for their education.

But if you wait until you've paid off all your debt to invest, he said, your goals will be harder to realize. "If you start late, you will never catch up to the person who started early with the same amount," Taylor said.

If you start younger, he said, life will be simpler.

"It requires setting up a really stupid $5 a day plan, and then doing nothing for 50 years," he said.

If you save $5 a day in an account with a 10 percent annual return, you'll have around $30,000 in 10 years, $330,000 in 30 years and $2.3 million in 50 years.

AdChoices
AdChoices

More from CNBC

image beaconimage beaconimage beacon