Main rules of successful investments remain unchanged for decades. Let’s recall why they say you should invest early and often
Why should you invest early and often? Source: shutterstock.com
Investment is one of the financial literacy topics even a child can understand. You put some money into a business or asset and get a return.
Naturally, making wise investments is much more difficult than that. You need to assess certain financial indicators and diversify your portfolio. Different investors have different approaches to choosing the best companies on the market. However, most of them agree you should start your investment activities as early as possible.
The phrase “invest early” may be interpreted in two ways: start investing at a young age and start investing in a company at a startup stage. Both meanings make sense and have certain advantages.
If you start investing as a young person, you’ll have more chances to build a handsome nest egg before you retire. Besides, you’ll have more time to learn about the market opportunities and improve your investment strategy. Moreover, younger people are more willing to take risks, so they aren’t likely to stick to the safe variants only. As you may know, low-risk assets are stable, but they usually bring low gains too.
Even if you choose wrong, you’ll get more time to recover from unwise decisions. High chances are, they won’t seriously affect your long-term financial goals. Those who begin to invest late in life are typically more cautious as they have limited earning potential and can’t risk losing a solid sum on riskier volatile ventures.
In addition, let’s not forget about the compound interest rate. You shouldn’t let your returns sit idly. Their regular withdrawal allows you to put this extra money to good use. By continuously reinvesting your earnings, you are exponentially increasing your return on investment. Compound interest naturally adds up longer, if you start investing early. Besides, your initial investment gets more time to grow in value.
When we speak of investing at early stages of a chosen company or project, it is both risky and rewarding. On the one hand, many startups fail within a few years of their foundation. On the other hand, those that manage to succeed, make your investment multiply at a fast rate. It’s especially true for those investors who have a stake in a company dealing with a new technology that becomes a game-changer.
For instance, the initial price of Bitcoin was around $0.0008. In twelve years, it has increased to $54,250. Therefore, for someone investing as little as $1 in the emerging crypto in 2009, the gains would be close to $68 million.
Perhaps, you keep telling yourself you’ll invest when you make more money. It may seem silly to become an investor when you only have a few spare dollars. However, as you can see, investing early gives you a great advantage of not being pressured by time. You can patiently wait for the chosen asset or share to accumulate value. Even small investments can bring big gains if there’s a long term ahead.
As for the frequency of investments, it remains up to you. We’ve already mentioned the benefits of compound interest, so your initial investment will grow annually even if you don’t add another penny. Nevertheless, regularity of your investments will eventually pay off. Even if you add a small sum of money every month (e.g. the price of a cup of coffee), it would make a huge difference in the long run.
Furthermore, leaving all eggs in one basket is rather risky. Proper diversification of your portfolio is impossible if you limit your investments to one or two stocks and never invest again. Besides, investing regularly is better than trying to figure out the perfect market timing, considering all its volatility.
At the same time, don’t overreact on this advice. With investing apps, almost half (49%) of investors are checking their investments’ performance once a day or more. They get worried by every market movement and may rush with portfolio re-arrangements. Excessive fixation on short-term returns can lead to impulsive decisions and prevent you from growing your money tree to a mature one.
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