Before we begin looking at the “earlier is better” philosophy for wealth creation, there are some odds and ends to clear out of the way. High-interest debt – credit cards are a big culprit here – needs to go first.
You also need an emergency fund because life throws some nasty curve-balls at times, and you should have insurance for the same reason. With that out of the way, it’s time to start investing.
But what about kids? While there are no specific stock apps for under 18, getting them started on the road to wealth creation is a good idea. And with so much time ahead for their investments to grow, it can be a great way to give them a head start in life.
3 Reasons Why You Should Start Investing
1. From Small Beans to Huge Wealth
The biggest reason why “earlier is better” holds true is the power of compounding. Don’t underestimate it. But that power only works over time. Warren Buffet illustrates it with a snowball effect analogy.
Using a practical example, $1,000 invested in Berkshire Hathaway in 1964 would now be worth $24 million. But those gains would primarily have occurred during the last five years as the snowball effect kicked in. So, the more time you have, the more you can grow your wealth – without using any risky strategies or gambles.
2. Investing in the Future
Investments should target life’s big events – the ones where people often fall into financial trouble and debt. Investing towards a more comfortable retirement is a biggie. Few pension plans are as good when the time comes than they may have seemed when you were still in your prime.
Start investing towards retirement as soon as you are able. College costs for kids are another huge drain, so look into 529 plans or act as custodian over investments intended for funding your child’s education. Funds coming from 529 plans are tax free if used for education, so they’re a really good choice.
There are also retirement-focused packages with tax benefits. However you go about investing, this point underlines the fact that investments are future focused. Your primary aim is long-term wealth, not short-term profits.
3. You Won’t Always Win In the Short to Medium Term
Movies and books about high-powered day traders trying to beat the stock market with trades made in the moment have given a lot of people the wrong view of investment. Financial experts agree that trying to “play” the stock market is invariably a loser’s game at some point.
Good stocks sometimes lose traction but recover and then grow. That’s not to say you shouldn’t leave a sinking ship – just be sure that it really is sinking before you make the move. With a diversified portfolio, you’ve spread your risk.
You may need to rebalance and tweak from time to time, but if you invested smartly to begin with, you should be fine, even if a few laggards have to go. The bottom line? The longer you invest for, the better your chances of getting good gains.
The Bottom Line
Before investing, clear out high interest debt. Think about big spends that are likely in the next three years or so. That money shouldn’t be invested since you’ll need it, and the time you need it may not be favorable in terms of returns.
Do invest in your kids’ future and your retirement as soon as you are able. Teach your kids by showing them what you’re doing and how it’s going. They’ll need that knowledge one day.
- 6 Investing and Saving Tips For A New Graduate
- On-Demand Apps Worth Investing in 2021: Top 5 App Ideas
- How To Be Smart With Money When Investing