6 Reasons Why You Should Start Investing While You’re Young
Picture this, you’re in your late 30s and still living from paycheck to paycheck. Sure, you’re earning well enough for yourself or your family, but you know that your salary doesn’t give you enough wiggle room to live out your life the way you want it.
We’ve all thought about this, and some are even living through this. Here are some reasons why you should start while you’re still young.
It Allows You to Take Control of Your Future
Working for your money and making your money work for you are two entirely different things. Working for your money means you’re tied to what you do that makes you earn while making your money work means your putting your money where it can grow without actively working for it. Something is empowering about telling your money where to go and where it can grow because at least you know that even without actively doing it, your investment is slowly building a safety net for you should the need arise.
Investing isn’t just about getting rich. It’s about securing your future. At some point, you’re going to stop working. When that day comes, won’t it be nice to know that you’ve created a way to keep you financially secure without having a 9-5 job?
You can be one step closer to a dream all young people strive for, retiring early.
It can help you push back against inflation
It’s no surprise that most people are panicking because of the rising inflation rate, and that’s completely understandable. After all, as the value of money declines due to rising prices there’s very little financial breathing space for most people right now. However, there are some ways for investors to keep back against inflation like stocks, real estate, and by investing globally. Sure there are risks, but that’s inherent in every investment. Compare that to the alternative of letting the value of the cash you have fall due to inflation.
It’s easier to recover from your mistakes
An investor’s age matters regarding the amount of risk they can take. How? Take for example, the case of Investors A and B. Investor A is an older man in his early 50s. He’ll be likely spending more on maintenance and will most likely be near retirement. In his case, the best advice would be to gravitate toward low-risk or risk-free investments, as investible funds tend to be less available. Investor B, however, is a young man in his early 20s, likely to have a stable job. He’s more open to riskier options due to him having the assurance of a paycheck that he can be sure to receive at his work.
Most people tend to avoid investing because they’re afraid of messing things up, and the fear is valid. However, most people tend to forget that investing isn’t this big, complex thing that you have to dedicate a lot of time and energy to get right. Just like with all things, practice makes perfect, and you’re free to experiment with different types of investments. You may not get it right the first time, but you’re likely to recover faster than when you choose to start later in life.
Read more: Tips for Investing in a Volatile Market
You’re missing out on opportunities
When asked what advice they’d give to their younger selves, most successful investors will agree that they would say, “Start early.” This ties in with the previous reason, you’re young and can recover faster. Plus, you’re most likely to be exposed and be able to keep up to date on the latest news and headlines in the investing world and will be able to plan accordingly.
As they say, opportunity only knocks once, so take it while you can.
Read more: 7 types of Long Term Investments and How they work
It’s never been easier to invest
Easy-to-use apps like Robinhood, Stash, and our own GInvest (via GCash) are readily available. They can simplify saving money by making it easier to put your money into investments like stocks, bonds, mutual funds and the like. Even investing in the stock market (in our case, the Philippine Stock Exchange) is easier nowadays with the help of online brokers such as COL Financial, Philstocks, and many more!
Not a fan of apps and prefer to go through the traditional brick-and-mortar banks? You can also invest in low-cost investments such as UITFs. These can be opened at any local bank and usually start at around P10,000. You can open it within a day; all you’ll need is an existing account with that bank and, for some, access to the web.
Read more: A beginner’s Guide to UITF
Time is on your side – use the power of compound interest
Not only is time your best friend when you’re investing, but you’ll also reap the benefits of something called compound interest—a phenomenon that Albert Einstein coined “the eighth wonder of the world.”
Here’s how compound interest works, to paraphrase Ben Franklin: Your money makes money. And then you make more money on the money your money makes.
Compound interest is the interest you earn on the money you’ve saved or invested plus the interest you’ve earned on your interest.
This works in both saving and investing. However, we know that investing is the best way to accumulate wealth since the potential returns are much higher than keeping your money in a piggy bank or even a traditional savings account.
Think of it like a snowball on a hill, drop a small amount at the top, and see it grow as it rolls down. The sooner you invest, the sooner you can start making your money work and compound later down the road. Just to give you a clue on how much potential growth you can achieve, you can try this online compound interest calculator and see for yourself.
We wrote an entire article about what compound interest is and everything you need to know about it, from what it is to how you can use it to turn time to your advantage.
Conclusion
The earlier you start, the easier it is to build up your wealth. Sure you’ll come across some difficulties especially when you’re just starting, but the truth is that you can’t wait for things to get easier than they are today. The older you get, the less free time and energy you have. To make it easier, start investing in small amounts and give it time to mature. Investing early can be one of the best decisions you can make in life for your financial wellbeing.
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