Do you feel like investing isn’t for you? It has a bad aura for many millennials, but we mustn’t be put off. Investing isn’t a monthly salary sacrifice. It’s building your own future. For most of us, investing our money wisely is the best shot we have at financial freedom.
The earlier you start, the better
There’s a temptation to leave investing until later in life. Maybe you’re not earning loads at the moment, and you expect your salary will grow with your career. In this case, why lock up your money in investments when you’ll have loads more disposable income later in life?
This is understandable, but actually, it’s smartest to begin investing as early in your life as possible. Here’s why.
The magic investing trick we all need to learn
The reason is ‘compound interest’. It’s the idea that, if you keep reinvesting the extra money you make, you potentially increase the rate that your money grows exponentially. If things go right, then the growth line of the graph isn’t straight, but instead curves upwards ever more steeply the older you get.
In other words, your investments can grow slowly at first, but then really quickly after a few years. Starting early means giving yourself more time for that growth to accelerate.
Let’s do a quick example.
An example to show the power of investing young
If you have £10,000 invested, and your investments do ok, then they might grow by 7% each year. This won’t always happen, but let’s see how this goes. Growth of 7% on £10,000 means you have an extra £700. Great!
Now, if you reinvest that money instead of spending it, then you will have £10,700 invested. Now let’s assume your investments perform the same again in the second year, and grow by 7%.
This time, you would get an extra £749. That’s £49 more than in your first year, even though the investments performed the same each year. If this kept on going for twenty years, then that 7% would grow to a whopping £2,532. Not bad for an initial £10,000 investment!
This phenomenon is compound interest. It’s the force behind these graphs you may have seen, where after a few years of relatively flat growth, your money shoots up. But you can only get the most out of it if you start investing early on in your life.
Compound interest gives investors the chance to benefit from exponential growth. So start investing today!
Create your account on Gather today and begin investing in funds designed to outperform traditional products, and help you potentially realise your dreams.
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The information provided by the blog are the opinions of the writer. As such, it should not be construed as investment advice.