Investing is a great way to build wealth without having to put in more hours at your desk job. It can help you save for retirement, buy a house, and even give you a little extra spending money.
Investing when you’re young allows you to start building wealth sooner rather than later so you can grow significantly more wealth than someone who starts in their 40s. Here’s why it is good to invest while young:
Compounding, which makes your earnings work for you by reinvesting them, has a significant impact on your investment portfolio. With this method of investing, you can invest fewer dollars each month from a younger age so you can end up with more money during retirement.
2. Allows You to Learn Early
Beginner investors make a lot of mistakes, but it’s better to make those mistakes when you’re young so you can learn from them earlier. Whether you’re investing now or later, there will always be a learning curve. When you invest when you’re young, you can learn from those mistakes and get that process out of the way without worrying about more important responsibilities like using your savings account to invest.
Making a beginner mistake in your 60s is more serious than the same mistake in your 20s because your retirement is still far off, and you don’t have as many large financial goals, including college funds, retirement, and paying off a mortgage. When you lose money at a young age, you have more time to recover your losses and bounce back. Not to mention, you won’t make the same mistakes again.
3. Better Computer Skills
When you’re young, you typically have a better computer and tech-savvy skills than those who are much older. Younger generations will always be better at using technology than older generations. While you can invest with very little technical skills, having them makes it easier because you can use trading apps and rely on technology to help you manage your portfolio. As a young person, you’ll also be aware of the companies that are industry disrupters, such as tech companies, so you can make smarter investment choices.
4. More Risk Allowance
When you have a longer timeline to invest, you can take on more risk without having the same type of stress that older generations have when investing. Essentially, your expected amount of time before you’ll actually use the money you invest is longer. For example, if you’re 30 and plan to retire at 65, then you have 35 years to invest, which means you can take on more risk than someone who only has ten years to invest.
Young adults can take on more risks since they don’t usually need all of the money they’ve invested for many years, even decades. Young investors can take on higher-risk investments, like cryptocurrency, without hurting their chances of paying for their children’s college or planning for retirement.
Provided By Tax Software Company, Sovos
5. Improves Spending Habits
When you start investing early, you’ll start caring more about how you spend your money. Instead of spending your hard-earned money on just anything, you’ll focus more on your budget and cost-cutting when necessary. Ultimately, you’ll earn money by saving it and investing it wherever you see fit.
If you have poor spending habits, then you can’t invest well early on, and you may not even have the money to invest in the first place. By investing early, you can learn more lessons to help shape your financial future earlier than people who wait until later in life to invest.
Not only that, but you’ll likely spend your money more carefully, by investing in stocks you are likely going to continue reinvesting in the stock market rather than impulse buying items.
6. Avoid Debt
When you start investing young, you can avoid debt better by using the money you earn from your investments instead of taking out a loan. While you still might need a mortgage loan to pay for a new house, you may not need to visit the bank to purchase a brand new car.
7. Increases Wealth
When you invest earlier than everyone else, you’ll typically have a better financial situation than everyone else down the line because your money has been compounding, and you’ve learned how to invest well. Those who invest later in life might not be able to afford the same or retire as comfortably.
In addition, investing early also allows you some comfort when your finances become unstable so you can be prepared to face hardships with the money you’ve earned through something like the stock market.
8. Improved Quality of Life
Investing in a retirement plan when you’re young allows you to secure a healthy, stable, and comfortable retirement from a young age. If you start your retirement too late, then you’ll have to use other savings accounts to afford your lifestyle after you stop working. You may not be able to retire as early as you like, which can make life difficult if you’re still working in your 70s rather than retiring at 65.
Investing young will also give you more money to spend when you retire. If you invest in multiple places, such as in a retirement account and stocks, you can earn even more money without picking up additional hours at work and have money to travel or fix up your house after you’ve retired.
9. Better Options
Technically, young investors have the same investment options as everyone else who is investing, but you’ll give yourself better options by learning about investing at a young age so you can make better decisions. When you invest when you’re young, you’ll make sure to avoid a certain amount of risk you’re not comfortable with so you never invest more than you’re willing to lose.
Investing young also means not needing to take on more risk. For example, if you just want to make sure you have enough money for retirement, you can open a retirement savings account as soon as you become an adult, so you won’t have to worry about using another savings account when the time comes.
Lastly, it is important to invest at an early age because you can always reduce costs and save money in other aspects of your life in order to have more money on deck for investing. You can look into cheaper car insurance or find an apartment that could save you money each month. Doing this will move sunk costs into something that could gain you interest.
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.