5 reasons why you're not too young to invest

Ah, the first salary. I remember it well. Switching from relying on my mum's money to being able to decide how, when and how much to spend was incredible. Yet, now, when I look back, I think about how many clothes lasted only one season after I bought them and how my money would have been better spent investing in an ETF. 

Sometimes I still feel like I did back then. Investing is something I can worry about when I get older, and when retirement actually becomes a possibility. But there are some very good reasons why investing when you’re young is good, even if you don’t think you’ll ever retire.

The power of risk

Photo by Gladson Xavier

When you are young, you are more prone to risk. And do you know what makes you a lot of money when you are more willing to risk? Investing. Starting to invest when you are young means that you can bet on riskier assets that offer great returns. Usually, as young people don't have big responsibilities yet, it's easier to bet on riskier assets and, in case of big losses, you just have to wait for the investments to recover. Often all you need is patience. This doesn't mean putting all your money on one asset. Diversification is still part of the game. Certainly, though, if you have fewer responsibilities and expenses on your shoulders, you can manage to take a few more risks.

It teaches you discipline

With the first real paycheck, it's easy to go a bit crazy with your spending habits. Unfortunately, this phase has to end sooner or later, usually when the first tax payment arrives. If you start investing right away, it's much easier to get into the right frame of mind and keep it as a habit for life. Once you understand precisely how much you spend per month and on what, it will be easy to see how much money you can devote monthly to your investments. By starting early, putting money aside will become part of your daily or monthly habits. You'll then learn how to keep your monthly budget balanced, knowing that your investment money should not be touched because otherwise, you might even end up losing money. You'll also be happy to lay a solid foundation for your future. 

The wonders of compound interest

Have you ever heard the term compound interest? If you're not familiar with the matter, compound interest is when the interest you earn on your balance in a savings or investment account is reinvested so that you end up earning more interest. Let's say: you have €1,000 in a savings account that earns 5% interest annually. In the first year, you would make €50, resulting in a new balance of €1,050. In the second year, you would earn 5% on the larger balance of €1,050, which corresponds to €52.50, resulting in a new balance of €1,102.50 at the end of the second year. Nowadays, the possibility of you finding a savings account that gives you a 5% interest rate is pretty low. Your best bet is doing the same thing but with investments that grow over time. The percentage that stocks gain daily is calculated based on their performance from the day before, meaning they compound each business day. If you reinvest your dividends and make regular deposits, you can help your balance grow even faster. And the younger you start, the more money you'll make. 

Dear old inflation

If you're an avid reader of our blog, this point shouldn't surprise you. We talked about it a lot and mentioned it as one of the reasons why it's better to invest than to leave your money in a savings account. This, obviously, also applies when looking at the age at which you start investing. If you put away a certain amount of money every month, it won't do you any good to leave it in a savings account. Nowadays, most of these accounts offer interest rates of around 2% (when you are lucky). Inflation in countries like Germany, Italy, France, and Spain is currently around 7%. You are simply losing money by leaving it in one of these accounts. If you want to see your money grow significantly, the only thing to do is invest; I'll never get tired of repeating this. 

Achieve your dreams sooner

Photo by Designecologist

You should start investing as early as possible because the earlier you start, the earlier you'll reach your goal. If you aim to have a sum of money that will allow you to enjoy your retirement to the fullest, obviously, the amount of money you'll have to invest monthly will be much less if you start at 20 than if you start at 35. Also, if you start earlier, and for whatever reason, you'll be unable to invest for a few years, you only need to avoid touching that money. Thanks to the compound interest mentioned above, you'll end up with a small treasure at retirement age. 

So, do you still have doubts? Just think that there are plenty of ways to invest nowadays without you even having to stress too much. With Vivid, for example, you can set up your savings plan and invest each month as much as you want on your favourite assets. It's never too late to invest, but, as someone said, the secret of getting ahead is getting started, right? 

Any opinions, news, research, analyses, or other information contained on this website are provided as general market commentary, and do not constitute investment advice, recommendations nor should be perceived as (independent) investment research. The author or authors are employed by Vivid and may be privately invested in one or several securities mentioned in an article. Vivid Invest GmbH offers as a tied agent of CM-Equity AG the brokerage of transactions on the purchase and sale of financial instruments with the exception of those in the area of foreign exchange brokered by Vivid Money GmbH.