When To Start Investing?Investing - When To Get Started
You need to start young to invest in life. When we are young, making financial decisions for the long term is rarely one of our priorities. The here and now is usually imposed because, in general, we tend to put our most immediate objectives first and put aside the financial needs that we are going to have in a long time, such as retirement.
The classic, I worry about, is usually the mantra that many of us follow when we think about the future. Although we worry about our future finances and what we want, at least to maintain our current standard of living when we retire, at present we do not worry as much to start saving and, therefore, to invest for when we stop to work.
Planning In The Age Of Longevity
How long are we going to live and how long are we going to live as retirees? Although a priori we cannot answer what we already know in advance, it is very likely that many of us will live a hundred years.
One of the consequences of having centennial lives is that we are going to have longer retirements. We are going to spend more, but we will probably have fewer public resources, so promoting private savings will be essential so that when we retire, we can meet the objectives that we had set.
From the International Monetary Fund, they have already warned on several occasions that the millennial generation will be the first to notice the impact of the aging population on their pensions. A concern that has recently been shared by experts, which, with its focus on the aging of the population, has proposed further delaying the retirement age.
Do We Invest Well In Advance?
You might have this question: why invest at a very young age? I understand that you might be earning low, or not enough to take care of your monthly expenses. Saving might seem to you like your only way out.
However, the first thing to keep in mind is that even though saving is enough for us, but we have to put our money to work, that is, properly invest our capital based on our time horizon and our objectives, being aware that time is a fundamental factor. Why? The sooner we start investing, the less annual saving effort we will have to make.
The Effects Of Delaying The Decision To Invest
To see how time influences when investing, we are going to put the case of a person who decides to start saving with 25 years, another with 35 and another with 45, up to 67 years (which, from 2027, will be the legal retirement age). In all the examples, the profitability objective will be 5% – to exceed inflation by three points – and the amount saved will be 3,000 dollars per year.
In the first case, when beginning to invest at age 25, over 42 years, the final amount obtained is 253,265 dollars, while, if invested from 35, the final capital is 163,865 dollars, that is, 35% less. And if it is decided to delay the time to invest until age 45, the final figure is 96,962 dollars -current in all three cases-, 62% less than if it had been invested from the age of 25.
Importance of Saving Young
Longer-Term, Better Results
One of the advantages of going to the financial markets from a young age and not needing the money for an extended period is that we can take more risk with our investments without fear of losing our capital.
By spending more time invested and making regular contributions, we capture all the opportunities that occur in the market and mitigate the effect of volatility in the short term, which makes us more likely to obtain the profitability we expected to meet our objectives.
Also, by investing over a long-time horizon, we can benefit from the effect of compound interest, which consists of reinvesting the profits that our investments generate. In this way, when investing from a young age in an investment fund, the capital, we invest every year is more significant because we accumulate the interest that we generate and that we reinvest, so in the end, we obtain a more considerable profit.
When to start investing in life? This question might be bugging you but you only need to understand that there is no time limit to start investing. You only need to equip yourself with research and get started today. Goodluck!!