# Hypothetical case of two brothers, one who invests early and one who starts later

I've seen a hypothetical case of two brothers, one of whom invested until 25 and stopped. The other invested from 25 until 65. The brother who invested earlier winds up with more money. Does anyone know where I can find this parable online? I wanted to show it to my kids.

• Google 'retirement calculator' and put in some numbers yourself to see what different scenarios would look like. Better to teach yourself first, before you try to teach your kids. Commented Mar 10, 2022 at 14:00
• Clark Howard touches on this topic a lot: clark.com/personal-finance-credit/summer-job-millionaire
– JohnFx
Commented Mar 10, 2022 at 16:43
• I first ran into it in a highschool Dave Ramsey class. youtube.com/watch?v=eIOUGZcmauo Commented Mar 11, 2022 at 12:41
• Keep in mind that this is strictly a theoretical mathematical exercise that has very little bearing on reality. As such, it has little more value than the infamous spherical cow. For instance, the calculation is completely overthrown if the second brother used the money he didn't invest to buy a home by age 25, while the other brother continues renting to age 65. Not to mention life events like marriage, children, ... Commented Mar 13, 2022 at 6:43

Do a search for "Ben and Arthur". The problem with most versions of this chart is that it uses a high discount rate (14% IIRC), but it is still illustrative.

The reality is none of us are either Ben or Arthur. Most have crappy jobs at the start of our career so we have little money to invest. As our career progresses we get raises and jobs with better benefits like higher 401K matches. More and more money is freed to invest.

So the illustration is very unrealistic but provides an insight into the power of compounding.

• Engineering interns get \$20 to start. Live efficiently, live below your means, don't chase the Jones'es next door, and for fks sake, don't go into debt. Commented Mar 10, 2022 at 21:52
• @paulj that is nothing nowadays. A buger combo at mcdonalds is 12.00\$. 20\$ an hour is absolutely nothing nowadays.
– JonH
Commented Mar 11, 2022 at 3:57
• Wendy's has \$4 and \$5 combos. You'll get much more money to invest! Commented Mar 11, 2022 at 7:56
• @JonH Then cook yourself? If you have a \$20 per hour job then you won't have to work 16 hour days to make a living, so you'll have time to cook. There are tons of recipes that are tasty and nutritional despite costing less than \$2 per portion. Make the math for that; assume homecooked costs \$2 per portion and fast food costs \$10 per portion (for simplicity) and with two meals a day that means you save \$240 per month if you cook all your meals. That is a pretty good monthly savings Commented Mar 11, 2022 at 8:42
• In other words the legitimate takeaway from the parable is the magnitude of the unearned advantage you get from being in the rare position of being able to start early, not a course of action for someone who doesn't have that advantage. Commented Mar 11, 2022 at 13:49

This page from a UK pension provider provides similar information. It compares the result at age 65 for the same monthly investment from age 0 to 18, versus from age 25 to 65. The 'tax relief' is UK specific, but the effect of compounding isn't:

• 0-18? Makes the case for parents setting money aside, but tough to do it tax-differed until the kid has earned income. 1%/yr cost over 65 years? The fund manager winds up with more money than the investor. Broken system. Commented Mar 19, 2022 at 12:12

Nothing magic about this. Whatever the annual investment return, when you have enough that you observe "my average return is more than my deposit", your friend just starting, with the same deposit, will never catch up to you, even if you stop. You can enter numbers in a spreadsheet to tinker with return/deposits, etc.

To Pete's point - Such articles may convince a young person to start investing early, or for parents to help their children (as the Clark article showed) get an early start. I mean not out of the house young. The teen with summer jobs can more easily choose between frivolous spending and saving than someone starting a job and having all the expenses that go with being in the real world.

The meaning of life is not to achieve a high ranking in a scoreboard upon death, where the scoreboard says "Who has more money left".

Investment and Debt are tools for achieving consistent "spending" aka enjoyment throughout entire lifetime.

In typical economics theory, a person who is young would spend money by borrowing (from parents and student loan providers). A person who is old would spend money by using money saved from the past. If you borrow too much aka spend too much, your spending when you are old will not be consistent. If you save too much aka spend too less, your spending when you are young will not be consistent.

Mathematically, whoever spends the most in a lifetime (discounted by inflation) and consistently over every period is the winner. This implies that extreme case of living frugally when extremely young as suggested by the fund managers is not optimal.

The formal theory on this is Life-Cycle Hypothesis.

https://research.stlouisfed.org/publications/page1-econ/2014/11/01/smoothing-the-path-balancing-debt-income-and-saving-for-the-future/

https://www.investopedia.com/terms/l/life-cycle-hypothesis.asp

• "Mathematically, whoever spends the most in a lifetime (discounted by inflation) is the winner." - assuming you have no children or other dependents or no interest in looking after them. Commented Mar 11, 2022 at 17:03
• Idea that `spending` = `enjoyment` is fallacy promoted by those who profit from such consumerist propaganda. In vast majority of the cases, it is exactly the opposite: chances are much higher that extra spending will make you extra miserable in the long term. (it is much like taking heavy drugs - it might make you feel "happy" for a short while, but you'll only require more and more to "not be unhappy" until it destroys any chance happiness ever) Commented Mar 12, 2022 at 15:40
• This answer makes a very good point. Lets flip it in an equally extreme way. Arthur pays for the trip with his friends instead of saving the money, when he gets a job he lives in an apartment that's a bit expensive but is near his work and in an area with a vibrant social scene, he eats out in a nice restaurant now and again. When he retires he has to cut back on his lifestyle a little. Ben invests every penny he can, he never goes on trips or eats out. When he retires he is a multimillionaire and can finally start having fun. Who made the right choices here? Commented Mar 14, 2022 at 11:36

Sorry to have overlooked the actual Question "Where can I find it…" as blatantly as most, and this is about dates, not maths.

How old is anyone here? That's not meant to be patronising, but to highlight that until roughly the Millenium, investment was almost incomparably more worthwhile that it is now.

Back then 5% was easy to find, 10% not uncommon and greater returns not rare, though risky.

Today 0.1% seems common and 1% magnetic so, broadly, the "traditional" expectation of return on investment might have been 100 times what we see today.

Back then, investing early was critical.

Today investing, as opposed to speculating, is worth the arithmetic it's written on…

• The ten years ending 12/31/21 the S&P returned 16.58% per year CAGR. Far too high to count on continuing, of course, but an outstanding decade. Are you talking about CDs, Bank deposits? That's part of the big picture, but not what is meant by "investing." Commented Mar 14, 2022 at 12:05