Timing Vs. Time in the Market
When it comes to investing, money has time value. Historically, investing early has led to compounded returns.
What is the Best Time to Start Investing?
As early as possible. And if you haven’t started yet, then as soon as possible. Saving money to grow wealth is the key to investing successfully over the long term. Although better returns are not a guarantee in any kind of investing, the more time/years your money remains invested, the greater the potential and likelihood you will experience a good outcome.
Investing Early Offers the Opportunity for Compounded Returns
Compounded returns occurs when you reinvest profits you earn along the way. Thus, you have the potential to earn money on that money as well.
Let's Look at an Example
You invest $2,000 at 19 years of age and continue to invest the same amount ($2,000) every year until age 26. If, for this example, we assume the market provides a 10% rate of return every year, by age 65 you would have earned about $1,035,160 – even though you stop adding money to the investment after age 26 and just left it invested.
By comparison, if your friend starts investing the same amount, $2,000, at age 27 and keeps adding $2,000 every year until age 65, the money they would have earned by age 65 would be around $883,185. That means, you earned $150,000+ more than what your friend earned even though you invested $62,000 less than what your friend did.
Investing Early Develops a Saving & Spending Discipline
Investing early teaches you to follow a budget every month. It helps you learn how to cut expenses when required instead of cutting regular saving.
"Time in the Market" is Better than "Timing the Market"
This is a classic investing maxim. This means that the longer you have invested in the market, the better the potential for good returns as the example above pointed out. If you wait for the “best” time to invest in the stock market, it’s very likely you would miss out on potential growth as the market ebbs and flows. When investing, the length of time your money is invested really matters, despite the ups and downs in the market.
Early investing allows you more time to take calculated risks and potentially improve your returns. You’ll also have a better chance of recovering from an investment downturn when you are young, rather than at a later age in life. Starting early gives you the best chance to secure your retirement and your children’s futures.
