If you've gone your whole life without buying and investing in ASX shares, by the time you get to age 60, you might be thinking, 'What's the point'.
After all, you'll often hear people, including the legendary Warren Buffett, talk about the amazing power of compounding, and how the magic of the share market only becomes apparent after decades of patient investing.
So let's talk about a hypothetical would-be investor who has just turned 60 and is wondering whether it's worth beginning an ASX share investing journey.
We'll assume our 60-year-old has paid off most or all of their house and has amassed a decent pile of cash. Let's say it's $150,000 in their bank after four decades in the workforce. We'll also assume that this person is intending to retire at age 67.
So we have someone with seven years until retirement.
Let's compare the benefits of investing in ASX shares against leaving cash in the bank.
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Is 60 too late to buy ASX shares?
As we discussed this afternoon, the returns of ASX shares over long periods of time simply dwarf those available from 'safe' investments like cash and term deposits.
Last year, our chief investment officer, Scott Phillips, discussed how an investment in a simple ASX shares index fund returned an average of 9.2% per annum over the 30 years to 31 July 2023. That was enough to turn a $10,000 investment into $138,778 over those 30 years, with no additional investments (apart from the reinvestment of dividends).
In contrast, leaving that money in the bank would have seen your $10,000 grow to just $34,737. That's with an average return of 4.2% per annum.
If our 60-year-old would-be investor kept their life savings in the bank with those cash returns (plus an additional $500 a month), they could expect to have just under $250,000 by the time they hit 67.
But if they choose to invest by buying ASX shares instead, that final sum would look more like $343,000.
That's enough to make a real positive impact on our investors' retirement plans.
However, there are some caveats we need to discuss. As most of us know, the share market is a volatile place.
Yes, its long-term returns are compelling. But there's no guarantee whatsoever that our investor will net 9.2% per annum over the next seven years.
It could be more. But it could also be less. Particularly if there is a nasty market crash or correction thrown into the mix. Past returns are never a certain indicator of future ones.
Because our investor are so close to retirement age, it might be prudent to keep some of their money in cash, and invest the rest in shares. That way, they can ride out any major market crashes in relative comfort.
Foolish takeaway
We can't pretend that anyone would be far better off starting their ASX share investing journey at age 30 or 20 than at age 50 or 60. Compounding does become exponentially more powerful with each passing year.
However, there's also no age where it's too late to buy ASX shares, and their benefits can't be harnessed to your advantage.
