Opinion: Start Investing When You’re Young
Updated: Nov 21, 2018
When learning any skill, it is best to start young - investing is no different. However, millennials today are way too conservative when it comes to investing. I get it, in our youth where money is scarce, it may seem rational to put off any investment decision until our financial situation stabilises. In addition, all the “horror stories” that have probably been embedded into our minds have likely played a part in dissuading you from entering the financial market. Nonetheless, it is important to note that the key ingredient in building up wealth is actually for one to start as early as possible.
Time value of money
Time is money. Many of us are familiar with the term “compounding”. It is a simple concept, really. The earlier you start investing, the more you earn – that’s the magic of compounding. Suppose an individual invests $10,000 and gains 5% interest per annum. After 10 years, assuming no withdrawals and a constant interest rate, he/she would have amassed $16,288.95 without lifting a finger. If we start investing when we are young, we start compounding our returns sooner as interest can be earned on interest. Doing this over a longer time horizon may just be the defining factor between a comfortable retirement and having to postpone one’s retirement owing to insufficient savings. In short, if you wish to stop slaving off at work and start living like a king sooner, you should invest your money earlier.
Experience is the best teacher
There is no perfect guide to investing. The best way to learn is by doing; picking up invaluable experience as you go along. Investing has a long and steep learning curve and young investors have the time and flexibility to learn from their successes and failures. Mistakes made in their investments will not be as impactful as they can afford the time to refine their strategies and rebound from earlier blunders. By starting young, you are essentially giving yourself the opportunity to better understand the intricacies of various markets and investment products earlier. This will undoubtedly groom you to become more financially savvy, allowing you to adjust and make wiser investment decisions that are better suited to your risk appetite and desired returns.
Ability to take on more risk
High risks, high rewards. Although someone who is fresh at investing may be inclined to start off with a low-risk portfolio, young people should instead be bolder in their investments (i.e. equities/alternatives). They should take advantage of the fact that they have years of earnings ahead of them; hence having no urgent need for cash, unlike people who are on the verge of retirement. Sure, markets are volatile and there are bound to be upsides and downsides. However, if one starts investing in say equities early, he/she will be better equipped to ride out the shocks and crises in the market. Simply put, if you are relatively young, you have greater means to wait out for the ideal economic condition/cycle that would ultimately enable you to enjoy greater returns from riskier investments.
While it may be true that millennials have little funds to work with, they have the greatest capital - their youth. Besides, one does not need much to begin with. There are many investment products that are available on the market depending on the amount of money one has to invest; for instance, you can always start by investing in unit trusts or by leveraging your trades. Everyone has to start somewhere, so take advantage of the abundant resources available online and embark on your journey to generate wealth now!
By: Guan Jia, Chee