When you get that first high school job or start working after graduating college, the last thing on your mind is investing for long term financial goals or retirement. After all, retirement is decades away! Why start thinking about it or planning for it when you are young? The reality is, however, that investing from as young as possible will give you some huge benefits. Read through these proven reasons why you should begin investing as soon as possible to save for a home, build a retirement fund, or to meet other financial goals.
Get Into and Start the Investing Habit at a Young Age
If you start investing as soon as you have enough money to make the first installment, and then set up automatic monthly or even weekly payments into an investment account (be that IRA, stock, etc.), then you’ll be setting yourself up for success for the rest of your life. You will be used to living on the lower amount and will always be setting your budget accordingly. Pay yourself first and you will have plenty of money later.
Habit and discipline are key, and the younger you get into the habit of saving and investing the better chance you have to build that “skill” into your life. Invest as a habit, and eventually the discipline needs to perform that habit will decrease. Investing using dollar cost averaging is another great habit to start at a young age.
If you wait until you make more money, get a raise, or your income/financial situation improves you may never actually get started with investing. You may, like many other people, always find some “Excuse” why not to start investing. Start as soon as you possibly can, at as young age as possible, to form a good habit.
Reduce Worry About Your Retirement
Older investors (especially those who started investing later in life) have to think about how they are going to afford to retire on a regular basis. This leads them to be constantly checking their investments to see how they are doing. Or maybe they make excessive stock or mutual fund transactions, and studies show excessive trading often leads to worse returns.
Not thinking about retirement can actually be a big investment advantage. Your IRA, 401K, and other investments can just work for themselves, grow, and compound. After all, the best way to build wealth is using time….let money work for you instead of you working for your money. If you are young and do not think you need to plan that far ahead, you might be better off.
This does not mean you shouldn’t begin investing; it means you should start your investments, but not pay attention to them. It is the “fire and forget” concept. Benjamin Graham was one of the greatest investors of all time. He taught Warren Buffet how to invest, and one of his main points for the regular investor is to not follow the markets. He explained that the best strategy is to invest in a wide variety of stocks, an S&P 500 Index Fund for example, and then forget about it until you are ready to retire.
The reason for this is that watching the stock market causes people to invest on emotions and they end up buying at high prices and selling when they market goes down, which is exactly the opposite of what you should be doing. The market naturally goes up and down all the time and following that roller coaster does not make money for the investor, only stockbrokers. So, use your lack of interest in planning for retirement in advance to your advantage. Get the money invested and then do not look at it. Find why you need to invest unemotionally.
You Can Tolerate Higher Risk Investments
If you start investing when you are young, you will be able to choose a portfolio that includes riskier stocks or a higher equity percentage of your portfolio. Higher risk investments typically have a higher profit over time.
When you have 30-40 years to prepare for retirement, there is plenty of time to weather the storm of any bear market and come out on top. In addition, if you start to invest when you are young (say 20) and something does go wrong when you are say 30 years old, you still tens of years (20 or 30 or more) to get your retirement and investment goals back on track. Investing when younger gives you time to correct any mistakes.
You Have Lower Expenses Younger
If you start to invest when you are still living with parents or roommates then your expenses will be lower than if you are starting a family. As when you are older you will usually be making mortgage payments, car payments, paying more and more for medical care and other expenses that life brings your way. Or if you are worried about expenses, and want to free up a few dollars, find how to budget.
Start young and get a jump start on investing when you do not have too many responsibilities or obligations. Even saving a several dollars per week (or invest/save $1 a day) is a start – it should be to free up some money to invest when you are young and expenses are low.
Benefit from Compound Interest
This is the single most important reason to start investing when you are young. With investing, time is worth so much more than money or your income at that moment. You earn money on the money you put in and on the money you earn from your initial investments. Your stock investment keeps compounding on itself.
If you invest just $1000 a year for ten years starting when you are 25, you will end up with significantly more money than if you invest $1000 a year for thirty years starting when you’re 35 years old. You will have a lot more money without putting as much in. Compound interest is very powerful.
Start younger and it will not cost you as much in the long run. It is amazing what a difference a few years makes. There are helpful calculators online that will show you how much money compound interest will make for you if you start early.
Or even learn about the rule of 72; divide 72 by your annual rate of return and that is how long it will take your investment to double. For example, if you earn 10% per year, your money will double every 7.2 years. The more time equals money doubling in value multiple times. Make your money work for you as soon as possible!
Do Not Delay – Start Investing Today
As you can see, when it comes to investments, it pays to start at a young age. Even start in college or high school (like I did). So get in the habit of investing, ignore the market to avoid investing on emotion (also called gambling), make more money with higher risk investments, take advantage of lower expenses, and most of all make compound interest work for you.
While it may seem difficult at first to buy stocks, bonds, or invest when you are young, you will be very glad you did it when you are able to retire early and live off the wealth that you have built.
By Jon McNamara