Now firmly in my 40th year on this planet, I’ve had my fair share of stock market thrills and upsets. Today, I’m going to share four things I wish I’d known about investing half my lifetime ago.
1. It teaches you discipline
Investing from an early age encourages you to be aware of your spending and consider whether buying the latest gadget, new jacket, or weekday latte, will bring you as much happiness as being financially secure a few years down the line. Cultivating this habit shouldn’t be too painful either.
Most platforms require a minimum investment of £25 per month in order to take advantage of low commission costs (which can often be £1 per trade). That’s roughly equivalent to a few pizzas or bottles of wine. Is that too much of a sacrifice to begin your journey to financial freedom? I don’t think so.
2. You learn what most people don’t until its too late
Prioritising learning about personal finance and investing in your third decade can really put you ahead of the curve.
I’d wager a lot of people only really become serious about their wealth (as opposed to just getting by) in their 30s or 40s, by which time they may be married, have a family to feed, and a mortgage to pay. Even if promotions at work are forthcoming, there may actually be less money — if any — left over at the end of each month.
Beginning your stock market journey before any of these major life events is prudent since you can always cut back on investing when necessary, safe in the knowledge the seeds already planted will continue growing in value (albeit not in a straight line) for many years to come.
3. You learn about yourself
Recognising your susceptibility to fear and greed from an early age ensures you never get too confident or too nervous about stock market movements. This still requires taking action, of course.
Like most things in life, you only get better at investing by actually doing it, experiencing its highs and lows and learning from both. Dummy accounts may allow you to learn the ropes, but the fact that decisions have no consequences ultimately makes them a waste of time.
And not a single investor in the world gets everything right. Warren Buffett – widely regarded as the best stock-picker in the business — once lost almost £290m on his stake in Tesco.
So long as one mistake doesn’t wipe you out completely (which shouldn’t happen if you’re sufficiently diversified), any errors made in your formative years can be recouped later on.
4. You benefit from compounding
Money can buy pretty much everything but time. The latter, however, can make you an absolute mint so long as you have enough of it.
Starting to invest as early as possible is probably the best financial decision anyone can make. Despite recessions, corrections, wars and political upheaval, copious studies have shown equities remain the best performing asset of them all over the long term.
And thanks to compounding (interest on interest), this decision greatly increases your chances of achieving financial independence.
Remember that £25? Invest this every month for 30 years and an average 7% annual return will give you just over £28,000 at the end. Make this 50 years and you’ll have four times as much.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.