Starting to invest early gives you the advantage of time and therefore the potential to reap the rewards in the long term. Here’s four key reasons why you should think about investing early if you can:
1. The more time, the better
Time is a powerful tool for investors – the longer you invest, the more time your money has to ride out any ups and downs of the market and recover any losses your investment may experience along the way.
For example, suppose you want to invest £500 every month and your investment goal is to have saved £500,000 for your retirement. In that case, assuming an annual growth rate of 4% per year, it would take around 37 years to reach this amount. Therefore, if you start investing at 25, you’ll be 62 when your investment reaches your target.Please note, this example is for illustrative purposes only. It isn’t a real life example or a recommendation.
Pleaseremember that the value of your investments can go down as well as up so you might not get back the amount you put in.
2. The power of compounding
Compounding is what happens when you earn returns on both the original amount you’ve invested, as well as any returns your money earns along the way. In other words, you earn returns on your returns – an effect which snowballs, or ‘compounds’, over time. So, by investing earlier, you have the opportunity to reach your financial goals sooner.
The more you invest, the greater the potential impact of early investing. Likewise, the longer you’re investing for, the larger the compounding effect.
3. Peace of mind
Juggling the financial commitments of life can be stressful, especially when an unexpected cost rears its head. Building up your savings early on can give you a greater feeling of security in times of uncertainty or financial challenges. It’s always good to know that you have a financial backup if you need it.
4. Combatting the effects of inflation
Inflation continues to be a hot topic, even though the rate at which prices for goods and services have started to decrease over the past year. But with the cost of living still impacting us, it’s important to ensure that your money isn’t losing ‘spending’ value. By starting to invest early, you can potentially combat the effects of inflation by earning higher returns over the long term.
Could a financial adviser help?
We all have different financial needs, personal goals and attitudes towards risk. It can sometimes be complicated to know if you have the right balance of risk and reward, so if you have a financial adviser, it’s worth speaking to them about your investments. If you don’t have an adviser, visit our Get financial advice page, to find one that’s best for you.
We'reunable to give financial advice. Ifyou're unsure about the suitability of an investment, speak to your financial adviser.
