Starting early is half the battle in investing
When investing, starting early is important. Younger investors have time on their side and time in the market beats timing the market, as the saying goes!
If you're young, chances are investing isn't your top priority. You might not be earning that much yet and retirement is decades away. Nevertheless, starting investing now is the best decision you could make as young investors have a huge advantage: time in the market.
You just graduated, are renting your own house for the first time and are working your first job. While it's wonderful to finally earn your own money, you need to be selective on what you spend it on. It's certainly rewarding to spend that hard-earned money on things that make you happy, like clothes, nights out, or weekends away, but if you consider the advantages of investing that money instead, you might see the true potential of your newfound funds.
Let time do the work
If spending your money makes you happy, that's your call! It's also good to understand the potential long term rewards of setting it aside in investments, as waiting to invest when you're older essentially means you miss out on a lot of potential returns. Later in life you have less time to let the return-on-return effect work for you. This effect ensures that your return on your investment will itself generate returns, allowing your invested money to grow exponentially in the long run. All you have to do is set aside money regularly and keep it up. Time will do the rest of the work for you.
Time is money
An example: let's dream big and say you want to have half a million (€500,000) by age 65. The chart below shows how much money you need to achieve that if you start investing at age 55, 45, 35 and 25. Here we assume an average return of 6.5% (portfolio Adventure at Peaks).
The calculations show the net return: they include the cost of index funds and the cost of Peaks. Know that the value of your investments can fluctuate.
If you start investing at age 55, you need to set aside €3,119 every month to have half a million by age 65. If you have 10 more years to invest, your required deposit drops from €3,119 to €1,142 a month.
If you give yourself another 10 years longer and start investing at 35, you will need to put in €544 a month. But if you start at age 25, you will need ‘only’ €285 a month to have €500,000 invested by age 65.
So, the earlier you start, the less impact investing will have on your spending habits. Also, now you finally know where the saying ‘Time is money’ comes from!
Know that investing takes risk and you may lose (part of) your investment.
Floor
Explore more
How to use investing to make your plans a reality
What does a sabbatical, buying a house or early retirement cost? And how would you go about planning for these things financially?