Investing is a scary proposition, especially at a young age. While the allure of investing brings with it financial returns and early retirement, it can also mean financial loss and confusion. At the same time, investing your money means holding off on spending it today on something that could bring immediate happiness. But, if you play your cards right and invest early, your likelihood of lifetime financial success increases immensely.
Start investing ASAP
The data doesn’t lie; the sooner you start investing, the better. Those who invest at a young age are, on average, more likely to grow their wealth, become financially independent and reach retirement sooner.
The biggest roadblock to this is our propensity to not think about the future. While you might know it’s better to invest now for the future, it is hard to put your money away rather than to buy that new TV or smartphone. Studies have shown that people who have a clearer picture of themselves in the future are more likely to save money today to support that future self. Putting yourself in this mindset could be as easy as making a financial timeline or budgeting for retirement so that you can visually see your financial future. These small changes to your mindset could pay off bigtime in the future.
Take a 24-year old named Dylan O’Byrne. Dylan comes from average wealth by every measure, and didn’t start with a handout or fortune. Instead, he started investing small amounts when he was just a child. Today, Dylan is worth more than $250,000. He recognized the importance of investing early in his life. His advice to others is simple. “Invest as quickly as possible, and for as long as possible,” O’Byrne recommends.
Even if you don’t have time to manage many different investments, it pays to find the investments that work for you and invest right away. Those that are able to find stable, solid investments at a young age reap financial benefits that others do not.
The magic of compounding
One of the biggest reasons investors see better returns when they invest early is due to the magic of compounding. Compounding is the process of continuously reinvesting money in order to receive more returns, which allows money to grow quicker when invested for longer periods of time.
Using ‘Forecast’ on your Go & Grow account, you can see the immense benefits that compounding provides. To use this, enter:
- Current principal – The initial amount you are investing
- Monthly addition – The amount (if any) you will add to your principal each month
- Years to grow – How many years your investment will grow
Let’s look at a scenario to show in real-time how important it is to invest early. Say you and your friend each have €1,000 that you can invest at a return rate of 6.75%* compounded yearly. You both have the ability to contribute an additional €100 to this investment each month if you choose.
You want to invest your money today and allow your investment to grow over 30-years, while your friend wants to hold on to his €1,000 for another 20-years, leaving the investment only 10-years to grow. Using the forecast calculator, we can determine what the balance of your money and your friend’s money will be at the end of the 30-year period.
By investing right away, you are able to capture the compounding benefits that your friend cannot, leading to an exponential growth in wealth. This is just one scenario which highlights how investing early and taking advantage of compounding can pay-off big time in the future. No matter what scenario you look at, the sooner you invest and maximize the power of compounding, the more your money will grow.
The first step in your journey to investing should be a strong financial education. It is never wise to make investments in financial products you do not understand or cannot explain.
Teaching the next generation the tools to be intelligent investors is one way to pass on your knowledge. There are a variety of apps and resources out there which you can use at home to give your children a head start in the world of investing. For instance, you could teach your children about finance through peer-to-peer lending.
Yet, it isn’t just the children that need to sharpen up on their investing knowledge. The European Union has recognized the drastic need to educate all consumers on financial topics. The EU’s European Economic and Social Committee has released a Financial Education For All outline of how countries in the EU are preparing their residents with more financial education.
The report notes the importance of these initiatives not just for the individual, but for the greater good:
“Making financial education widely accessible will benefit society as a whole, reducing the risk of financial exclusion and encouraging consumers to plan ahead and save, which would also help to prevent people getting into excessive debt. To promote financial awareness among consumers, various different initiatives – known as financial education schemes – have been set up by supervisory bodies, financial institutions and other players in civil society.”
This has caused many organizations to include financial literacy as a piece of their education tools for consumers. Financial literacy plays a large role at the Electronic Platform for Adult Learning in Europe (EPALE) and European Banking Federation, among others.
Don’t let your financial future pass you by
Investing is the most time-tested method of growing wealth. You can continue to raise your income each year, but if you don’t invest, your money will remain stagnant while others see their wealth grow. It can be hard to invest in the future when you want to spend your money in the present, but by being financially prudent and investing today, you can have the financial future you have always dreamed of.
*As with any investment, your capital is at risk and the investments are not guaranteed. The yield is up to 6.75%. Before deciding to invest, please review our risk statement or consult with a financial advisor if necessary.