When's the best time to start investing?
When's the best time to start investing? (0:57)
The short answer is now. Over periods of years, diversified portfolios, made up of assets likes stocks and bonds have tended to rise in value and perform better than leaving money in a bank account. Of course, there are always ups and downs over time, since how the market will move over any day or month is extremely difficult to forecast. Yet, being in the market for years is generally considered a good way to put your money to work.
Another important thing to know about is compounding. Compounding means that as your money grows, you then earn extra money on any amount that your money has grown by, as well. Essentially you have the potential to earn profits on your profits over time. Albert Einstein supposedly called compounding the eighth wonder of the world. We agree that compounding is impressive because it can cause money to grow faster than you might expect. For example, if you earned a steady 5% a year on your money, the value of that would double within 15 years. All compounding needs is a steady positive return and time. Also, remember that depending on how you invest your returns may be subject to tax. This can lower your returns in a similar way to how you typically don’t receive the full amount of your salary, because some is paid in tax.
So, the value of investing really comes with time. Over shorter periods compounding gives you less of a boost. Therefore, we believe on putting time on your side. Starting to invest now can help you do that. It can be tempting to wait for the absolute perfect moment, but history suggests that time is likely to be now.
It’s ok to start small, but the key thing is to start. Start with a small amount and then commit to a steady monthly contribution that you can afford. Also if you receive a pay increase or a bonus, consider adding that to your savings rather than spending it. The key thing is to get started to today, if you establish good savings habits, you may be surprised how quickly your money grows.