By Grant Meintjes
If you think investing is for only the wealthy, old or financially savvy, it’s time to think again. One of the biggest misconceptions among young people is that they need to wait until they have a lot of money or expertise before they can start investing. Nothing is further from the truth, and in reality the earlier you begin your investment journey, the more you stand to gain.
Despite being in the early stages of your career and earnings, you have a secret weapon when it comes to building wealth, and that weapon is time. By harnessing the power of compound growth and building good financial habits now, you can lay the foundations for a lifetime of financial freedom.
Here are five powerful reasons why the best time to start your investment journey is when you’re young:
You can start small. There’s a perception that you must earn a high income before you can start accumulating wealth, but that’s simply not true if you start young. For example: If you sacrificed one take-out meal a month and instead invested R300 per month at a 7% annual return, after 10 years you’d have over R51 000. Keep that up for 40 years and your small monthly take-out sacrifice will have earned you R750 000. Best of all, R600 000 of that will be interest, which is your money working hard for you, as it should!
Investing is more accessible than ever before. Technology has made investing incredibly easy, and very affordable. There are digital platforms and products specifically designed for young investors that allow you to start building an investment portfolio with as little as R100. One example is the Nedbank Stockbroking for Young Investors product. If you are between the age of 18 and 25, you can use our digital platform to invest in top JSE shares or diversified ETFs while paying reduced broker fees of just 0.25%, with no monthly admin fees.
You build a habit of financial discipline. Investing is a powerful tool for instilling good financial habits that will benefit you for a lifetime. When you prioritise investing versus spending, you become more mindful of your income and expenses, and that leads to better budgeting, reducing your expenses, and aligning your money with your financial goals. Starting this process at a young age will help you develop the discipline and financial skills to get ahead in life.
You can take more (calculated) risks. As a young investor, you have the time to recover from a poor decision, a market downturn or an investment loss. When retirement is still decades away, you can afford to take on higher risk, higher-return investments. While reckless risks should still be avoided, you don’t have to be overly conservative when you have a 40+ year investment horizon, so you can take advantage of your youth to invest aggressively and earn strong returns over the long term.
You get to harness the full power of compounding. When you invest money, and reinvest the growth, you get a return not only on your original investment but also on the money you reinvest. Think of it as earning growth on your growth. Best of all, every month the cycle repeats, creating a snowball effect where your money grows exponentially over time, so that even small amounts invested consistently from an early age can grow into huge investment balances over decades.
* Meintjes is head of stockbroking at Nedbank private wealth.
PERSONAL FINANCE