When Investing, Use Time to Your Advantage
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Most of us understand that an investment is a process of investing money in order to earn a profit. Usually, we make the mistake of relegating all our investments towards the later part of our adult lives – mostly after the age of 30 when we are well-settled in our careers and happily married. However, one of the most important things towards ensuring a comfortable life in the future is to start investing as early as possible.
Why should you use the time to your advantage when investing?
The straightforward to this question is that you end up with far more when you start investing with time on your side. You have a longer period at hand towards building wealth. In addition to this fact, ideally, most investments increase in value over time – the longer money is put to work, the better it is at generating future wealth.
Many people do not realize the immense importance of time when investing. The undeniable truth is that when it comes to investments, the old adage ‘the early bird gets the worm’ applies in every sense. It may seem that you should start investing once you become financially stable and can stand to lose some money even if you make mistakes. However, the truth is that young adults, especially the ones who are just starting out on their careers, are primed to enter the world of investments. There are numerous benefits of investing at a young age with time to spare.
The benefits of timely investments
While there is nothing wrong with investing money at a later age, there are numerous benefits of investing early. It isn’t easy investing at a young age, but the advantages that timely investments provide in the long run far outweigh the temporary hardships that you might have to bear.
Top 6 Benefits of Timely Investments
1. Compounding returns work to your advantage
The magic of compounding returns is extremely powerful over the long run. The ability to grow your wealth by reinvesting your earnings over time leads to huge benefits. Consider the following example:
If you invest $10,000 dollars at an interest rate of 5% when you are 20 years old, the investment will grow to over $70,000 by the time you’re 60 years of age. However, if you invest the same amount when you’re 40 years old, it will only yield about $26,000 by the time you turn 60.
As you can clearly see, the earlier you start investing money, the better returns you will get.
2. You can take more risks
As a young investor, you have the ability to take on more risks because there are years of earning ahead of you. Consequently, you can choose to make riskier investments that can produce larger gains without having to worry about your finances too much. However, the same doesn’t hold true when you become a bit older. Once you approach the later stages of your career and are nearing retirement, it makes more sense to opt for low-risk investments that promise guaranteed returns.
3. Your learning curve is greater
Investing money has a significant learning curve. Some investments can be really successful over time while others might fail terribly and leave you high and dry. If you invest early, you are bound to learn from these successes and failures. You can hone your investment skills and strategies over time by studying the markets carefully and gaining experience in the process. On the contrary, if you invest at a later stage, it is likely that you won’t be able to make an educated and well-thought out decision concerning your investments due to lack of time.
4. You can recover if your investment falters
As a young adult in your 20s, you have more time to recover your money if an investment fails. You can try your hand at different kinds of investments like bonds, mutual funds, real estate or anything else that you fancy. Whatever you invest on, if your investment drops over a year or even over several years, you still have the time to recover and get your finances back on track. Investing in a timely manner also makes you more prepared to take on more volatile, growth-oriented investments such as stock funds.
5. It improves your spending habits
When you start investing early, it automatically helps in developing positive spending habits. You learn the value of money at a young age itself and are less likely to overstep your financial boundaries in the future. Not everyone can gain the exposure that you do while investing in different markets at a young age. Ultimately, you are bound to learn some lessons along the way and these lessons can mold you into a much more financially responsible individual.
6. You have a better quality of life
Timely investments provide you with a head-start in the world of personal finances. By starting to build your wealth early in life, you have the ability to afford comforts in life that your peers might not be able to. Your basic quality of life improves when you are working on your career and continues to keep improving as you near retirement. Even after you retire, you have a considerable nest egg to work with so your life is much more comfortable and stress-free.
To sum it up
You need to invest in your life, both figuratively as well as literally to be financially stable in the future. To this end, time is indeed your greatest ally so you need to take full advantage of it if you want your investments to be successful. Remember, all financial goals are achieved through dedicated efforts and careful planning over the course of time.
So, give yourself enough time when investing and the good years will balance out the bad years, if any. Ultimately, you will be left with the good results that you had always desired.
For professional tips on using time to your advantage when investing, consult top financial advisors today.