Why it’s important for young people to invest…

When young people (as a 25 year old, I include myself in this group!) finally have the income to buy the things we've always wanted, setting aside money for investment may not seem that important. I don't know about you, but for me, my monthly salary disappears more quickly than I could have ever imagined. So, you might ask: why not start investing in a few years’ time, when you have more money to spend and save?

The reality is that most people don’t ever feel that they have ‘spare cash’ hanging around to put into an investment. As you get older, you have more financial commitments – you may have a family, so need a bigger property and bills will be higher. This earn-spend cycle never really comes to an end.

But when it comes to investing, the truth is that the longer you can invest for, the greater the returns usually are.

It’s difficult to be a good long-term investor. Really difficult. But once we understand that wealth creation is a long-term process and that there are no shortcuts to it, there is never a better time to get going than when you’re still young. And as a young earner, the biggest advantage you have is TIME.

5 reasons to start investing young: 

1.      Time is on your side

The money you invest now has more time to grow before you're likely to need it. Patience is key.

2.      The power of compounding

When you invest young, you have more opportunity to reinvest profits from your investments and gain even greater levels of growth as a result. This is known as compounding or compound interest and it’s a winning formula for really getting the most out of your money.

3.      Pound cost averaging and beating fluctuations

Pound cost averaging is a strategy that investors use to reduce their exposure during times when markets are dropping. By making regular affordable contributions, you will smooth out market volatility. This is not necessarily important if you are invested for a long period of time, but it is worth mentioning.  

What’s more, the younger you are, the more you can afford to ride the waves of market volatility as there is time to recover from any losses.

4.      Improve saving habits

Investing small amounts each month can help you develop strong saving habits. While focusing on what you do well, such as education or building your career, you can start investing small amounts often in the background so that the money begins to work for you. Small daily habits can generate big accomplishments.

You can also help prevent impulsive spending by committing to regularly investing a set sum of money.

5.      You have higher risk-taking ability

Investing is risky… but, as the founder of Facebook has said, “The biggest risk is not taking any risk.”

Young investors are better able to withstand risks. We do not have the worry or responsibilities like raising children and paying off a mortgage. Instead, we have an edge to sustain the volatilities of riskier investments and there is time for investments to bounce back relatively quickly should things not go our way. We will also learn a lot from the mistakes we might make, without it costing us too much.