On why starting to invest now, even with small amounts, can grow wealth over time and set you up for financial security and a comfortable retirement.
Tim, who started investing at the age of 20 and invests £350 a month, with an average annual return of 7%, will have approximately £1.3m at retirement age of 65.
Sally, who waits a bit before getting her act together and starts investing the same amount at the same annual rate, but waits until she’s 35 years old to invest, will only end up with approximately £430,000 at retirement.
This is a significant gap between these two final retirement numbers, and the difference is that Tim started early.
But that’s not the only reason you should start investing now.
There are many reasons why people are initially reluctant to start investing.
In this article, I will explain why it’s better to get started as early as you can, then we will counter those excuses that people often have, and we will see why they are simply excuses.
Why start early if you can?
Starting early with retirement investing offers the powerful advantage of compounding returns, where your earnings generate their own earnings over time.
This means that even small investments made early on can grow significantly, thanks to the exponential nature of compounding.
Additionally, beginning early allows you to spread out contributions over a longer period, reducing the monthly amount needed to reach your retirement goals.
This not only makes saving more manageable but also provides more time to recover from market downturns, benefiting from the long-term growth potential of investments like stocks.
Moreover, starting early fosters better financial habits, helping you develop discipline and financial literacy as you learn and refine your investment strategy.
It also allows you to fully utilise tax-advantaged retirement accounts, maximising your wealth accumulation.
Overall, early investing reduces financial stress, offering greater flexibility and security as you approach retirement, ensuring a more comfortable and worry-free future.
What’s holding people back?
I will go through the 3 most common reasons people just don’t start investing now, and I will hopefully counter them as excuses.
1. Financial Instability
The first excuse that people often come up with is that they aren’t ready financially, or it’s not a good time for their finances due to any number of reasons.
Let’s see how to address that issue.
You Can Start Small
It’s a common misconception that you need a large sum of money to begin investing, but the reality is that nowadays you can start small and still make meaningful progress.
Today, options like fractional shares allow you to invest with just a few dollars, giving you access to even the most expensive stocks without needing to buy a full share.
To find money for investing, create a simple budget to identify small amounts that can be redirected from daily expenses.
By consistently setting aside even modest amounts, you can begin building your investment portfolio over time.
Now, starting small will inevitably lead to smaller results, but it has a more important effect.
Starting small in investing does more than just grow your money; it helps you build a consistent habit of regular investing.
This consistency is key to long-term success because it teaches you discipline and helps you establish a routine that can gradually grow over time.
By setting aside even a small amount regularly, you start to develop the skills and mindset needed to manage your finances effectively.
Over time, this habit can lead to greater financial stability and the ability to invest more confidently.
Starting small also reduces the pressure and fear that often come with investing, which can be a big barrier for many people.
When you invest smaller amounts, the risks feel more manageable, and this can make the process less overwhelming.
As you watch your investments slowly grow, you’ll likely gain confidence in your ability to make smart financial decisions.
This confidence can motivate you to increase your investment amounts, further boosting your potential for wealth-building.
In this way, starting small is a powerful way to ease into investing while setting the stage for long-term financial growth.
Balancing Investing with Debt and Expenses
Many people worry that they need to focus solely on paying off debt and covering expenses before they can start investing.
While it’s true that high-interest debt should be a priority, it’s possible to strike a balance between paying off debt and investing for the future.
Consider a strategy where you allocate most of your resources toward paying off high-interest debt while still setting aside a small amount for investing.
It’s also wise to build or maintain an emergency fund alongside your investments to ensure you’re protected against unexpected expenses.
The mathematics will favour the highest interest, and usually that’s going to be deb; however, as I just mentioned, there is psychological value in building the habit in the first place.
Investing as a Path to Financial Stability
Whilst you are in a state of financial instability now, investing can actually be the path out of it.
Investing isn’t just about growing wealth; it’s a crucial tool for achieving long-term financial stability.
Even small, consistent investments can grow significantly over time thanks to the power of compound interest, turning your modest contributions into a substantial financial cushion.
By making investing a regular habit, you can create a safety net that supports future financial needs, from unexpected expenses to retirement.
This approach helps build a solid foundation for financial security, ensuring that you’re better prepared for whatever the future holds.
2. Lack of Knowledge or Experience
You don’t know what you don’t know, and investing can be quite daunting due to the fact that it has real-world consequences with your money.
Let’s address this reason people don’t get started investing.
Understanding the Basics is Easier Than You Think
Investing can seem like a complex and intimidating world, but the basics are more accessible than you might think.
The key is to start with simple investment options that are easy to understand, such as index funds or ETFs, which spread your money across a variety of stocks, minimising risk.
To build your confidence, take advantage of educational resources like books, podcasts, or beginner courses that break down investment concepts into understandable pieces.
There is a lot of information out there, and a lot of it you simply won’t need immediately when you start.
You Don’t Have to Be an Expert
It’s important to realise that you don’t need to be a financial expert to begin investing.
In fact, many tools are available that can do much of the heavy lifting for you.
For instance:
- Robo-advisors create and manage a diversified portfolio based on your financial goals and risk tolerance.
- Similarly, target-date funds adjust your investments automatically as you approach your retirement date.
Starting with small amounts and gradually increasing your investments as you learn will help you grow your knowledge and your portfolio simultaneously.
Learn from Mistakes.
Like in everything, mistakes are part of the process
Making mistakes is a natural part of the investing journey, and it’s important to embrace them as learning opportunities.
Don’t be discouraged by short-term losses or errors; what matters most is staying focused on your long-term goals.
Many successful investors have made mistakes along the way but used those experiences to improve their strategies and build wealth over time.
By keeping a long-term perspective and learning from your missteps, you’ll be better equipped to make informed decisions in the future.
3. Starting Later in Life
Now you might be thinking that you are too old to start investing or that it’s too late, and you have missed out on your opportunity.
It’s natural to feel concerned if you haven’t started investing as early as you might have liked, but it’s important to remember that it’s never too late to begin.
While starting early offers certain advantages, such as more time for compound growth, starting later still has its own benefits and opportunities.
Any investment is better than none.
Even if you start later in life, you can still accumulate wealth over time.
The key is to maximise the time you have by investing regularly and strategically.
Focus on making the most of your current financial situation, whether that means contributing more aggressively to retirement accounts or seeking out investments that align with your risk tolerance and time horizon.
Financial stability and a clearer understanding of your financial goals
Being older often comes with the advantage of financial stability and a clearer understanding of your financial goals.
You might have a better idea of your retirement needs, and with fewer years ahead, you can focus on creating a tailored plan that addresses those specific goals.
This can involve a mix of safer, income-generating investments along with some growth-oriented ones to help your money continue to grow.
Investing is about making your money work for you, regardless of when you start.
Even later in life, investing can help you build a more secure retirement, generate passive income, and leave a legacy for your loved ones.
The best time to start investing is always now, no matter your age.