When it comes to investing, the sooner, the better. You will have more chances of achieving your long-term goals if you start investing early, and that’s because of a number of reasons.
It’s never too late to start investing (but it’s always better to start earlier)
You’ve more time to build wealth. If you are young, you may not have a lot of money but you certainly have one thing – time. You will have longer to enjoy the benefits of compounding if you start earlier rather than later. Compounding is the process in which the return from an investment is reinvested to produce additional returns. Through compounding, the growth of your wealth accelerates with time.
For example, suppose you have invested $1,000 for a 10% return. Once the return ($100) is generated, you can re-invest it alongside the capital ($1,000). By investing $1,100 at 10%, you will receive an interest of $110, a greater amount than your original return and an amount that will grow exponentially, year after year.
You can take risks. Starting late can make you more cautious, and you will take fewer risks. However, starting early allows more time to recover in case something were to go wrong, and with greater risk comes a greater expected return: younger investors have the flexibility to build more aggressive portfolios, with higher volatility to aim at higher returns.
You won’t regret it later. If you are still young, take the advice of those older than you. Even Warren Buffett, who started investing when he was 11, regrets not having started earlier.
You need time to build your future nest. Investing means preparing funds and financial stability for your future, older self. It’s the foundation on which to build financial freedom, for the day you want (or have) to stop working. You cannot start the day you retire.
You need time to learn. Investing can present a steep learning curve. The earlier you start learning, the farther you will go and the more time you will have to recover from the mistakes that novice investors invariably make.
Where to begin
Learn: if you are not versed in finance, consider taking courses, read blogs, do your research. Or if you prefer, avail the services of financial advisors (although if you start as early as you should, you may not have enough money to afford an advisor).
Build an emergency fund. You never know what might happen, and having an emergency fund is very advisable. A commonly-accepted idea suggests 3 months’ salary worth of savings should be the minimum amount to aim for, before thinking of investing. Having emergency savings can offer a buffer if something unexpected were to happen, and you may not have to rush and liquidate (maybe at a loss) existing investments.
Make a plan: Proper planning is never a bad idea. Think of investing as a journey: it begins with knowing your destination. Having clear goals gives you direction, discipline and a reason to focus.
Decide on your investment strategy: there are many asset classes, many different risk/return profiles. Find the one that suits your needs and preferences.
Diversify: never put all your eggs in one basket. Build a portfolio that does not depend on the performance of a few, concentrated positions.
Decide on your investment pace: how much, how often. Decide the amount you can safely allocate to your investments, and with what frequency. Be realistic but ambitious, and aim to increase your contributions whenever the circumstances allow.
Take (reasonable) risks: if you are young, you can better afford to take risks – and with higher risks come greater expected returns. Market volatility may be scary, but it is also an opportunity.
Monitor your investments: stay on top of your investments, and their performance – in absolute terms, against one another and in relation to your overall wealth. Exirio has the perfect tool to do just that. Take a look at our demo!
Pace yourself: don’t go all-in, be patient and consistent. Try to get comfortable with the ups and downs of the market, never stop learning and limit beginner’s mistakes by taking baby steps.
Final Thoughts
Investing early is the first step to achieve exceptional results. Starting early means you have more time to understand the markets, how the strategies work, and the steps you can take the next time. In addition, early investors get more opportunities for future planning and savings. You can slowly move your way up and learn along the way.
But don’t despair if you are no longer very young and have not yet started; just be aware that with a shorter time horizon comes less flexibility, and a less aggressive investment strategy may be more advisable.
Either way, open a brokerage account if you don’t already have one, and get started!
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