Investing: the earlier the better

We’ve talked about investing and the power of investing over and over again. Let’s talk about time now. One of the fundamental principles that are often stressed by finance experts and investors is the importance of starting early, the earlier the better. This financial mantra is all about the advantages of starting as soon as possible, optimising your resources without wasting time and money along the way.

Compounding

Early investing is getting pushed down everyone’s throat for a key reason, compound interest. This form of interest is the process by which earning an interest on an investment “duplicates”, by earning an additional interest over time. The earlier you decide to invest, the more time your money can “simmer” and compound, resulting in exponential growth over the long term.

Imagine you and B, two people with similar backgrounds and similar socioeconomic status, decide to invest €10,000. You invest at 25, while B decides to wait until he’s 35. Assuming a generous annual return of 7%, by the age of 65 your returns will be around 76k, while B’s investment would be around 38k. By investing 10 years earlier than B, you have nearly doubled your returns. Not bad.

Some tips

Be humble: you don’t need to be rich to start investing, and don’t need a huge sum either. Many online platforms and even your own banking app allow you to begin with as little as €1. It’s better to start smaller earlier, than to invest a bigger sum 10 years from now.

Think for the future: investing is not a sprint, think of it as a lifelong marathon with no water breaks. Having a long-term perspective will help you avoid diving into things, and making impulsive choices based on what might turn out to be short-term market fluctuations.

Take your time and study: options, strategies, different forms of investments and different risk factors are something you should be comfortable with. If you can’t explain what you’re investing in to someone with no financial literacy, it might be the moment to take a step back and reeducate yourself.

Automation: setting up automatic contributions to your investment accounts will help you build a stable and consistent flow of funds, regardless of market conditions and whether or not you remember to log into your online banking app.

The bad and the ugly – The risks of early investing

The benefits are clear (profit), but it’s important to acknowledge the potential risks and challenges that you, as an early investor, might face.

Volatility: markets are not the most predictable thing, and can be extremely volatile. Prices of assets can rise or drop tremendously over a short period. Early investors might be penalised by market downturns.

Experience: if you’re just getting started, the whole investing thing might feel overwhelming. Young and inexperienced investors might not be ready to navigate the complexities of investment alone, the lack of know-how might lead you to take decisions that could end up in huge losses.

Cockiness: early success in investment can lead to overconfidence and excessive risk-taking, wanting too much and too early could cost you big in the long-run.

Learning from mistakes

While it’s important to be inspired by people’s successes, it is equally important to learn from their mistakes. The “dot.com” bubble of the early 2000s serves as a stark reminder of the risks associated with throwing money at the first speculative, overvalued company that pops up on the market. Internet-related stock is huge, always has been, but looking back there is no denying that thousands of investors, young and old, poured their money away into internet-related stocks, only to see the bubble burst.

Investing in pop culture

Investment has become a part of pop culture, with trends, innovations and memes capturing the attention of the younger generations. Just look at Bitcoin and cryptos. We have all heard about the legendary early Bitcoin investors, people who become millionaires or even billionaires without even realising it. By throwing a couple of euros on cryptos before their heydays, they have unconsciously helped showcase how easy and immense the rewards that come with early investment can be.

Confirmation and survivor bias aside, many have fallen victim to scams and fraudulent schemes. The volatile price swings and the legislative grey area crypto companies operate in force investors to deal with these uncertainties alone.

Given the new “pop” undertones of investment, the traditional perception of stocks and investment as a reserved and “formal” niche has given way to a younger, more relatable and approachable landscape. TV shows and movies such as “The Wolf of Wall Street” have brought investing into the mainstream world. Virtual communities on social media platforms such as Instagram, TikTok and Reddit are blossoming and growing day by day, amplifying the influence the world of finance has on the younger generations. Memes and emojis have found their way into discussions about stocks, cryptos and real estate, making them more “relatable”, bite-sized and digestible.

Investing early lays the foundations for long-term financial success. While the journey of investing is a promise of wealth and prosperity, it is crucial to approach it wisely and with a balanced and educated perspective.