What waiting costs — cash on deposit versus invested

The reference case invests the whole amount immediately and compounds it annually at your expected return for the full horizon. Each delayed case compounds the same amount at the deposit rate for the delay, then at the expected return for whatever is left of the horizon. The opportunity cost column is the difference between the two final values, so it already has the deposit interest netted off — the interest you earned while waiting is not ignored, it is simply outweighed. Five fixed delays are shown, from one month to two years.

This prices a delay, not a market view. It assumes the investment earns your expected return from whenever you start, which means it cannot tell you anything about whether prices will be lower after the wait — it holds the return constant and varies only the start date. Compounding is annual rather than monthly, no fund cost, commission or tax is applied, and the deposit rate is assumed fixed for the whole delay.

Is this an argument against waiting for a better price?

No, and it is worth being precise about that. This page holds the return fixed and varies only the start date, so it can only price the compounding you give up, not the price you might get. What it does show is the size of the prize the wait has to win: if two years of delay costs a meaningful fraction of the final value, the entry point has to be materially better to have been worth it, and it has to be better reliably rather than once.

Why is the cost so much larger than the delay?

Because the months you lose are the earliest ones, and under compounding the earliest months are the ones every later year is multiplied through. Delaying by a year does not remove one year of growth from the end of the run, it removes a year from the front and shifts the entire remaining curve down by that factor. The longer the horizon, the more years that shifted curve has to compound the shortfall.

Does this apply to a monthly contribution as well?

The same mechanism applies but the magnitude is smaller, because only the contributions you have actually made can be delayed. This page deliberately models a single lump sum, which is the case where the effect is largest and clearest. For a stream of contributions, the lump sum versus phased comparison in the simulations section is the closer fit.

• Rule of 72 — doubling time at any rate of return
• Emergency fund calculator — the price of the buffer
• Purchasing power — what inflation and Box 3 do to cash