Some people dream of investing for many years but never get round to it. Others, like billionaire Warren Buffett, start buying shares in school and spend decade after decade building wealth in the stock market. In the UK these days, that might involve a Junior ISA.
So, is it best to start buying shares young – or later, with more life experience and perhaps more capital?
Everyone is different
The reality is that there is no single correct answer to the question. Broadly speaking, though, I reckon when it comes to investing, a good rule of thumb is the sooner the better.
The main advantage of starting younger is that it extends the possible length of one’s investing timeframe. With long-term investing, we can all use time to our advantage when it comes to building wealth.
One possible downside is if that young age happens to coincide with an overpriced stock market. That is a risk of starting at any age, though — it depends on how the market is doing at that point in time.
To borrow an example from overseas, the Japanese Nikkei 225 index – broadly equivalent to our own FTSE 100 – only hit its previous high from 1989 last year.
So an investor at the peak had to wait 35 years just for their portfolio to get back to the value it had when they started investing. Taking inflation into account, that means a significant fall in value in real terms.
Personal experience can have real value
But timing the market is notoriously difficult (and arguably impossible).
Some people decide they will wait and start buying shares only when the market has crashed. That could mean they pick up bargains – but it may mean sitting on the sidelines for decades, potentially missing good opportunities along the way.
Also, in the Japanese example above, there are a couple of things I did not mention that may be worth considering.
One is that building wealth through shares can happen not just from share price growth, but also any dividends received. So, a portfolio may fall in value over a certain time period, but thanks to dividends, the investor could still end up making money, not losing it.
On top of that, great investing is something that has to be learned. The longer one is the market, the more opportunity there is to learn how things work. Buffett was always a good investor – but I reckon he is better now than in his early days, thanks to decades of experience.
Starting on a modest scale
All that said, it takes at least some money to start investing and I think it makes sense to begin modestly, so any learner’s mistakes are not too costly.
One share I think investors should consider is Scottish Mortgage Investment Trust (LSE: SMT). It illustrates my point about some shares pumping out dividends even in down markets – the last time it cut its payout per share was after the 1929 crash!
But with a dividend yield of just 0.4%, the main attraction here is potential share price growth. Scottish Mortgage focusses on investing in companies it reckons have strong growth prospects, such as Spotify and Nvidia.
That approach brings the risk that, if pricy growth shares lose momentum, Scottish Mortgage’s valuation could also fall.
However, over the long run, I like the trust’s focus on a diversified range of growth opportunities.
