6 Reasons You Should Start Investing Early – Eighth Wonder Investing (2024)

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Investing early can be one of the best decisions you’ll ever make. Getting the ball rolling with compound interest can set up a future of financial ease for you and your present and future family.

Here are six reasons why you should start investing early:

1. The Earlier You Start, The Better
2. Time In The Market Beats Timing The Market
3. More Risk, More Recovery Time
4. Learn By Doing
5. Achieve Financial Freedom
6. Build Generational Wealth

The Earlier You Start, The Better

“Compound interest is the eighth wonder of the world. He who understands it earns it; he who doesn’t pays it.”

Albert Einstein

There is a reason why Einstein called compound interest the eighth wonder of the world. The earlier you invest, the more time it can work for you. Delaying your investing journey can cost you hugely in the long term.

Let’s say your friend started investing at age 20, investing £1,000 yearly at an annual rate of 10%. In 40 years, they would accumulate £609,687.73.

Now, let’s say you start investing just two years later. You invest £1,000 like your friend, at the same 10% rate. In 38 years, you would accumulate £497,678.73.

Even though you invested the same amount at the same rate, by starting your investing journey two years later, you would have £112,009 less than your friend when you both turn 40. Delaying by just two years…£112,000 difference.

The best time to plant a tree was 20 years ago. The next best time is now. Starting to invest as early as possible may be one of the best decisions you’ll ever make. Compound interest is your best friend – he who understands it earns it.

Time In The Market Beats Timing The Market

The main aim of investing is to buy great companies when they are cheap and sell when they become expensive – buy low, sell high. The only issue is that timing when companies and the market are trading at the lowest is difficult. Trying to time the market rather than spending time in the market can cause you to miss out on huge gains.

According to Schroders, if you invested £1,000 in the FTSE 250 Index in 1986 and forgot about it for the next 35 years, it could have been worth £43,595. If you tried to time your way into the market during this time and missed the index’s 30 best trading days, that £1,000 investment would only be worth £10,627 – almost £33,000 in potential gains that you missed out on by trying to time the market.

The more time you spend in the market rather than trying to time it, the more money you make.

More Risk, More Recovery Time

With huge risks come huge rewards, and investing early allows you to take on more risks. With a longer investing time horizon, you can invest in young, growing companies that can massively outperform the market. If such investments work out, you can make huge returns quickly. On the other hand, if those high-risk investments don’t work out and you lose a lot of money, you have plenty of recovery time ahead of you.

If you start to invest late, taking on huge risks may not be the best idea. Investing in more stable and mature companies with proven track records of profitability may be the better choice.

Learn By Doing

The best way to succeed in investing is through experience – the more experience you have, the fewer mistakes you tend to make, and the more money you make. If you invested without researching a company and lost money, you would know not to do that again. Similarly, if you followed the facts about a company and not your emotions when making an investment decision, and it paid off, you would know to continue doing so.

Investing early also allows you to find what works for you – what strategy you prefer, what companies you understand, and what to look for in a good stock. Over time, you would refine your skills and increase your knowledge, becoming a better investor than you were on day one.

Achieve Financial Freedom

Investing early can help you achieve financial freedom.

For example.If you invest £160 each month from the age of 20 at an annual rate of 8%, when you turn 40, you could be sitting on as much as £95,659.84. Just under £100,000 in 20 years by putting your money to work early.

Investing early also reduces your financial burden concerning how much you need to invest. If you aim to make £100,000, you can invest £160 per month at 8% for 20 years or £513 monthly for 10 years. Although it takes longer to make £100,000, investing £160 monthly is more manageable, especially if you start investing from a young age.

Building Generational Wealth

Making one of Charlie Munger’s quotes more family-friendly, he said that making your first £100,000 is the hardest part of your investing journey but is crucial for wealth building.

Continuing from the above example, after investing £160 per month and amassing just under £100,000 in 20 years, it would take a further eight years to make £200k, five more years for £300k, three more years for £400k, and another three years to amass half a million pounds. After making £100k in 20 years, it would take 19 years to accumulate £400,000 more – the power of compounding. Eight further years of doing this, and you would have your first million.

From 20 with no investments to 67 with £1 million just by investing £160 each month at 8%.

Finding an investment that returns 10% annually can double your returns in the same 47-year period – you’d have £2 million instead of £1 million at age 67. If this sounds interesting, you can find a list of high-returning, low-cost investments here.

Summary

Investing early can be one of the best decisions you ever make. By starting early, you can take advantage of the powerful effects of compounding, learn what works for you and from your mistakes, and achieve financial independence whilst building generational wealth.

The six reasons why you should start investing early:

1. The Earlier You Start, The Better
2. Time In The Market Beats Timing The Market
3. More Risk, More Recovery Time
4. Learn By Doing
5. Achieve Financial Freedom
6. Build Generational Wealth

Disclaimer

Eighth Wonder Investing is not a financial advisory service; we DO NOT offer financial advice, personal or otherwise. The information on this blog is for information purposes only and should not be construed as financial advice. No content should be relied on as a substitute for personal financial advice or recommendation. Please do your research and or consult with a qualified financial professional before making any investment decisions.

DO NOT make investment decisions based solely on information from this blog. For the full disclaimer, click here.