Investing vs. Debt Over Time

Photo Credit | iStock | 2223553121 | ISerg

Most of us have heard of the “Latte Factor,” coined by finance author David Bach.  The idea is that small expenses such as buying a latte every day adds up when you invest the money instead. 

Other experts counter this advice as too simplistic.  They say that you should instead focus on making massive amounts of income. 

I took a deep dive into this idea with financial calculator in hand.  Over a 40-year career, starting at age 25 and ending with retirement at age 65, what kind of nest egg could you build? 

Of course, stock and bond investments do not perform the same way every year.  One year, they could be up significantly, then end up negative the following year.  Stock market indexes going back to 1928 show that values always go up over a long period of time.

40-Year hypothetical investment with monthly contributions at the end of each month

Indeed, there is value in saving even small amounts of money consistently over time. Earning a super-high income would be great, but if someone spends more money than they earn, they could still end up with nothing.

Some young people who are just starting their careers haven’t given much thought to the power of compound returns – earning money not only on savings but on earnings as well by letting their nest egg accumulate untouched. 

Instead, they may take on personal debt for things that are beyond their current means.  For example, it’s considered normal to take on a payment or lease to buy a new car, instead of paying cash for an older but still reliable model.

With loans, the power of compounding returns works the other way – in favor of the bank!  Most car loans are for five years, while mortgages are amortized for 15 or 30 years.  However, to line this chart up with the previous example, I created an extreme example of a 40-year loan with monthly payments held until the end:

40-Year loan with monthly payments at the end of each month - paid down to zero

While debt can be a useful tool for investing in real estate or buying a home, consumer debt at an early age can have big consequences in the long run.  Our small day-to-day choices can determine if we end up with great wealth – or if we make the bank even richer! 

Call (808) 521-4015 to schedule a “Free Financial Assessment” with one of our Wealth Managers.

Written by Christina June Brown, CFP®, Andrews Advisory Associates, LLC © 2025.

Debt payment chart created with the calculator found here: https://www.creditkarma.com/calculators/credit-cards/debt-repayment.

Investment advisory services offered through Andrews Advisory Associates LLC, a registered investment advisor. This blog is not meant to give investment advice. Before investing in any advisory product please carefully read any disclosure documents, including without limitation, the firm’s Form ADVs. The information herein is provided for informational purposes only, and does not constitute an offer, solicitation or recommendation to sell or an offer to buy securities, investment products or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. These opinions may not fit your financial status, risk and return profile or preferences. Investment recommendations may change, and readers are urged to check with their investment adviser before making any investment decisions.