Many people are not willing to take the first step to invest. Why?
Fear? Are you worried about losing money? Do you feel that you might make a mistake investing? The list continues on and on…
While many people are unaware of the benefits of investing and why NOW is the greatest time to invest. I’ve listed a few reasons why I believe you should dabble into investing now:
1. Compound interest
Compound interest is the interest that you earn on your interest, in addition to the interest that you earn on your primary investment.
If you invest S$100,000 today at a 5% annual interest rate, you will earn S$5,000 in interest, giving you a total of S$105,000 after one year. Investing this cash in your second year will give you S$5,250 in interest, which is S$250 more than you earned in your first year. Compound interest accounts for the additional S$250 you earn in your second year.
Compound interest is the phenomenon that permits small amounts of money to develop into big amounts of money over time. To fully benefit from the power of compound interest, investments must be allowed to grow and compound over extended periods of time. To add on, the key point is that the earlier you begin investing, the greater the advantage of the compounding impact.
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”– Albert Einstein
2. Time horizon (More Recovery Time)
What is your current age? 20? 21? 22? 24? 28? You’re still very young! The goal of investing early is to have a long time horizon with more recovery time to accumulate wealth for retirement.
When it comes to investing, more volatile endeavors typically provide the biggest return on investment. Investors who have the time to recoup if anything goes wrong have the chance to take on more risk. Those who start investing later in life are generally intrinsically more conservative with how they invest their money and so may not achieve spectacular returns.
As a result, having a longer time horizon will help you to manage your risk more effectively and efficiently. According to a Schroders analysis, short-term investors have a staggering 40% probability of losing money. On the other hand, if you invest for 20 years, your chances of losing money are reduced to 0.1%.
3. Save More/Your Saving habits will improve
Investing early also allows you to develop disciplined spending habits by focusing on your budget and cutting expenses when necessary. Prior to investing, I frequently indulge on high-end food and apparel. However, after I began investing, I realized that every dollar counted. As a result, the objective here is to make money through saving money.
I learned the hard way that investing is difficult with bad spending habits and a life full of impulse purchases. Three years ago when I indulged in investments, I began to realise the importance of every penny.
This actually speaks to me deep down, and I believe it is one of the key reasons why NOW is the greatest time to invest.
4. It’s okay to make mistakes early
Many people avoid investing because they are frightened of making a mistake, such as selecting the incorrect stocks or losing money. Investing isn’t this huge, difficult task that requires a lot of time and effort to master. You don’t have to be a real estate magnate or a Wall Street billionaire to be successful. In fact, here’s some encouraging news: Because you are young, you may “afford” to make a few blunders, especially when making your first investments. Indeed, it is very common to lose money when you just started investing,
Many people, though, let their emotions get the best of them. When you are emotionally charged, you are more likely to make reckless decisions rather than reasoned ones. People lose money in the stock market for a variety of reasons.
When I first started investing, I checked in on my portfolio every day, fretting about every decision I made. However, after a few years of stock market experience and intelligent sharing from my mentors, I grew detached and no longer emotionally attached to my stock portfolio. In addition, I came to realize that investing allows you to better understand yourself (how much risk are you willing to take, how well do you sleep etc).
5. Investing have never been easier
With the emergence of the COVID boom, many brokers are quick to leverage on that opportunity to onboard new and curious investors. There are a variety of stock brokers such as Tiger, MooMoo and Interactive Brokers (IBKR) which have good User Interface and cheap commissions compared to old school brokers such as DBS Vickers and UOB Kay Hian which charge hefty commissions fees.
One broker I will highly recommend is: Interactive Broker (IBKR)
A transaction in the US market costs as little as US$0.35, making it very inexpensive for regular investors. Because of its cheap commission cost, the investment barrier is quite low. It also allows you to purchase fractional shares. Retail investors are permitted to purchase one-tenth of a share.
For example, if you cannot afford one share of GOOGLE (US$3,000) but still want to buy it. You may purchase 0.1 share of GOOGLE for US$300, which is significantly more reasonable. As a result, retail investors now have more alternatives and equities to invest in.
(If you’d want me to go into a comparison of several brokers or the specific benefits of a well-known broker like IBKR, please leave a comment down below!)
6. Be educated about the stock market
It is better to begin investing in the stock market RIGHT NOW, because it does not hurt to be more financially knowledgeable. Instead, it will cause you to plan for your future, and retirement will not be a cultural shock for you. This is due to the fact that as you become more invested in the stock market, you will naturally be more attracted to learn about investing, which will allow you to enhance your research and analytical abilities. Indeed, investing may not be for everyone, as there is no such thing as a one-size-fits-all solution. Individuals should be aware of the importance of personal finance at the very least.
Stock markets exist to benefit the economy as a whole. It allows people to earn a return on their income by investing in the stock market, and it lets businesses diversify their risks and reap enormous benefits. As a result, I am convinced that investing in the stock market is a life-long skill.
7. A small case study where we put the same $$ placed into cash, bank and invest over 30 years
- Cash: 0% – $100,000 (After 30 years)
- Bank: 0.05% per annum – $101,510.93 (After 30 years)
- Investments: 5% per annum – $432.194.24 (After 30 years)
We recognize that investing may not be for everyone. However, in this day and age, there are various options to practice passive investing, like Index ETFs (VOO and QQQ) and even robo-advisors! We think that your investing decision is influenced by a number of factors, including your risk tolerance, age, investment horizon, and financial objectives. So, make an informed decision for yourself. It is prudent to invest only after thorough study and comprehension of your investing possibilities. You should also think about the tax consequences of your investments and returns (if there’s any!).
Disclaimer: The information provided by LearnToInvest serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.