You’ve no doubt heard the saying ‘the early bird catches the worm’. This ageless proverb applies to practically every facet of life, including investing.
When it comes to investing, you don’t have to wait until you have saved up a huge sum of money to get started. Success in investing is not tied to the amount of cash you’re able to put into investments, but in commitment, sound decisions and early mover advantage.
Starting early is key to succeeding as an investor because the early bird does indeed catch the worm. So, what exactly are some of the advantages of starting your investment career early?
Meeting Investment Goals
Investing early can help you meet both your short term and long term financial goals. When you start investing early, it gives you enough time to plan your strategies and react to market conditions. This way, your long-term investment goals such as saving for retirement, planning a ship cruise in your old age, paying for children’s education or clearing the mortgage on your home becomes easily achievable.
The sooner you can get into the investment game, the quicker and easier it will be to meet your financial goals.
It is not always enough to just invest on time. Regularly exploring and taking advantage of investment opportunities will also help boost your investment portfolio. It can be helpful to put aside a small part of your income for this purpose every month so that when an investment opportunity comes calling, you will have ready cash to invest. Thankfully, some banks offer current and savings accounts that allow you to create personalised running orders for different purposes and easily move your money around as and when you need it.
The Compounding Principle
The compounding principle grows investment at an exponential rate, giving the investor unbelievable returns at the end of a long-term investment period.
The compounding principle is decided based on four factors: the investment rate, interest, duration and tax rate. These four factors together can help am early bird investor create enough wealth that can be used as a retirement nest egg. For example, if you invested £10,000 when you were 20 years old, and never made another investment, but left your initial £10,000 to compound quarterly at an annual return rate of 7% until you reach the retirement age of 62 years, your investment of £10,000 will have grown to £1,709,400 within forty-two years. This is how compounding works.
Starting your investment at the age of thirty-five with the same amount of capital and under the same conditions will give you £1,098,900, which is more than £600,000 less than if you had started at twenty. This illustrates one of the early-bird advantages of investing.
The Smoothing Principle
As an investor, one thing you should be prepared for is market fluctuation. The tide of the market can change suddenly and for funny reasons, and this has both a positive and negative affect on investment portfolios. However, investing early and regularly can protect you from the whims and quirks of an unpredictable market.
Investing on time (not necessarily when you are younger, but more so taking advantage of opportunities early) and regularly means that you will be investing at virtually every level of the economic circle. This can help even out the effect of market turns better than if you had chosen just to buy several shares on a specific date.