Ideally, you will start to invest as soon as you get your first job. It may also be possible to contribute to a custodial account before you start working. Let’s take a closer look at the benefits of opening and contributing to an investment account at a young age.
The Money Has More Time to Compound
The primary benefit of investing when you are younger is that your money will have more time to compound. Let’s say that you want to start investing at age 20 and retire at age 65. If you invest $1,000 when you are 20, you will have $109,530 when you are 65 assuming 11 percent growth per year, which is the historical rate of return for the stock market.
This also assumes that you don’t put any more money in during your working years. If you invested $1,000 when you were 30, you would only have $38,574 dollars by the time you turned 65. That is $71,000 in lost money simply because you waited an extra decade to start investing.
You Become Fiscally Literate
There is more to investing than just putting money in the market and hoping for the best. You have to constantly be on the lookout for interest rate hikes, changes to tax laws or changes in economic sentiment to get the most from your money. Over time, you will need to reallocate money from stocks to bonds or from stocks to cash as market conditions change. Being responsible for keeping track of your portfolio forces you to learn more about money and how to manage it in the short and long-term.
You Develop Better Money Management Habits
Those who learn about the value of money at an early age tend to carry those habits into adulthood. Therefore, if you have good money management skills, it is likely that your children and grandchildren will develop them as well. This is generally true whether your own parents taught you how to value a dollar or if you learned those skills on your own.
More Money Equals More Control
By investing your money earlier in life, you will have more money at your disposal as you get older. This can have ramifications for your social life, professional live and family life. For example, you may be able to afford a larger home in a better school district or afford to retire at age 55 instead of 65. Those who have a high level of financial health tend to have better mental and physical health as well. Ultimately, you will have a higher quality of life compared to those who don’t have the same financial resources that you do.
Everyone Wants to Learn How to Succeed in the Stock Market
An ability to understand the stock market and profit from it is generally regarded as specialized knowledge. Since many people will want to know what you know, it could provide an opportunity to make money from your skills and experience. Whether you want to start a blog, teach a class or run a seminar, there are many different ways that you can use your ability to make money as a way to further increase your income and job security.
Some Assets Don’t Lose Value in a Recession
As an investor, you may have the opportunity to make money buying real estate, gold or other commodities. Some of these items don’t lose value during a recession or will still outperform the market in poor economic times. Knowing that you can stay in your house and provide for your children during a recession or other times of economic weakness can make it easier to sleep well at night.
If you want to retire or simply have a better financial future, you should start investing as soon as possible. Whether you have $10 or $1,000 to invest each week, put away whatever you can as early as you can. Thanks to compound interest, it is possible to obtain a better life for yourself and for your kids by putting money where it has a chance to grow faster than inflation.