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If you are entirely new to investing, you may be a little hesitant to get started. However, when it comes to making your first move, it is always better to start sooner rather than later.
In this article, you will discover three fundamental reasons why investing today is better than investing tomorrow.
The sooner you start to invest, the sooner you can benefit from the power of compound interest.
Compound interest refers to the interest you receive on your investment, including the interest you receive on your interest. Hence, the sooner you start and the longer you invest, the more return you will generate.
Let’s explain using an example. Say you are 30 years old and decide to start investing with the aim to cash out in 20 years time. You invest $5,000 initial capital and add $250 each month into your investment portfolio at an average annual return of 8% for the 20 year period. In that case, would end up with $171,889 at age 50.
However, if you start investing at 25, with the same parameters of $5,000 initial capital and adding $250 a month to your investment portfolio at 8% and you again hold it until you are 50, you would end up with $274,457. That’s over $100,000 more than if you started investing five years later.
Regardless of whether you are putting money into stocks, bonds or real estate, it is best to start as soon as possible and to keep adding to your investment portfolio over time to generate the best possible long term returns.
If you are following the news and are hearing talk of a sluggish Australian economy, a volatile stock market, or any other statements that turn you off starting to invest today, remember that you are investing for the long term. Short term volatility will affect all investments to some degree, but, as an investor, you are only concerned with the long term return.
Therefore, short term market volatility should not be a big concern for you. What matters is the average annual return of your investment portfolio over a 10 plus year period.
What matters is the average annual return of your investment portfolio over a 10 plus year period.
When you first start researching investment possibilities and are looking to purchase your first stock or buy your first property, all the terminology and processes involved may seem daunting. However, as you go on to make your second, third and fourth investment you become more knowledgeable about how the investment process works and what you need to look out for.
Therefore, the sooner you start investing, the more knowledgeable and experienced you will become as an investor. This, in turn, will help you make better investment decisions in the future.
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