Why The Younger You Start Investing, the Better — and It’s Never Too Late Either

When is the best time to start investing money? Typically, as early as possible. Whether it is saving for a pension or trying to accumulate wealth, the earlier you start, the more time you have to take advantage of compound growth. 

Additionally, if you’re in your 40s or 50s and haven’t started, don’t worry. It’s not too late. If you invest smartly — and don’t make any mistakes — you can still build a nice nest egg. 

Early Investors

It’s never too early to start investing or learning about investment. If you’re a parent, you can do your kids a favour by teaching them about saving and financial discipline. 

And when they are a little older, you can even help them invest early with an eye toward a housing deposit or teach them to start making small, regular monthly contributions.

Many young adults are intimidated by investing. But they shouldn’t be. If you are young, you’ve got lots of time for your investments to compound. Additionally, you can afford to take long-term positions in emerging industries.

With a bit of education and awareness, investing can be an excellent option for younger people.

Advantages of Early Investment

Early investment has several advantages. As we mentioned earlier, compound investment is a great way to grow a lump sum. Over 30 or 40 years, this effect can become very dramatic. Additionally, investing promotes good financial habits, like saving and discipline.

Many young people are in the habit of saving, but with interest rates around 0.1% and inflation on the rise, they need to seek alternatives.

How Much of Your Income Should You Invest?

Many beginner investors aren’t sure how much they should be investing. While a lot depends on personal goals and spare capital, there are some helpful general guides. One such guide is the 50/15/5 rule.

The 50/15/5 rule suggests that 50% of earnings go towards essentials like rent, mortgage, transportation, foods, etc., 30% towards entertainment or discretionary spending, and 5% for short-term savings. That leaves 15% that the rule suggests should go toward long-term investment.

For younger workers, 15% won’t always be possible. However, even starting with a lower percentage is a great way to build good habits. Then, when earnings increase, you can allocate more money toward investments.

Tips for New Investors

Investing doesn’t have to be complicated. Here are some tips for anyone at the start of their investment journey.

Be Serious About Investment:

Many younger investors think that the stock market is about quick returns and high-risk gambles. In fact, a recent survey suggests that 61% of young investors are in it for the thrill. Which is a risky strategy that can lead to heavy losses.

Reddit stocks like Gamestop and thinly regulated markets like cryptocurrency are attracting young investors. Additionally, “gamified” investment apps are also proving popular. While the appeal is obvious, some of these high-risk products aren’t suitable for beginner investors. 

Consider ETFs and Tracker Funds:

Passive funds which track indices like the S&P 500 or FTSE 100 are a good option for inexperienced investors. These investments are straightforward, have low fees, and generally produce good annual returns.

Making regular contributions to a diversified portfolio is a great strategy for beginner investors. However, finding a little variety is advised if you are more interested in investing in individual stocks or industries. Other avenues to look at are commodities, venture capital, real estate, or precious metals.

Embrace Down Markets:

If you’re a new investor, your first down market can be scary. However, bear markets are an opportunity to buy great stocks at a discount. New investors should learn to appreciate the benefits these circumstances can bring.

Growth Stocks:

Growth stocks are an obvious choice when you start your investment journey. Remember, you are in it for the long haul, so stocks with the potential to deliver sustained returns will help you compound your investments.

Learn From the Mistakes of Others:

Some mistakes are inevitable. But repeating the mistakes of others can be avoided. So when other investors talk about their biggest mistakes, try to listen. Some of the most valuable things you can learn are what not to do.

Summary

Investing as early as possible is the best way to maximize returns. Compounding the returns from an index like the S&P 500 can turn small, regular investments into a considerable retirement fund. 

While younger investors will get an early advantage, don’t worry if you’re only getting started in your 40s and 50s. With the right strategy and a disciplined approach, you can still put together a big pot.

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