How? Start earlier than they do, it’s that easy!
Starting an investment at age 25 as opposed to age 35 can offer several advantages due to the power of compounding and a longer investment horizon. Here are some key benefits:
More Time for Compounding
Compounding is the process where your investment earnings generate additional earnings over time. Starting at age 25 gives you an extra 10 years for your money to compound compared to starting at age 35. This can significantly boost your overall returns in the long run.
Higher Risk Tolerance
Generally, younger individuals can afford to take on more risk in their investments because they have a longer time horizon to recover from potential market downturns. This allows for a more aggressive investment strategy that may yield from higher returns over time.
Longer Time to Ride Out Market Volatility
Financial markets can be volatile in the short term. By starting at 25, you have a longer time to ride out market fluctuations and benefit from the overall upward trend of the market.
Building Good Financial Habits
Starting to invest early encourages the development of good financial habits. It establishes a routine of saving and investing that can lead to better financial discipline over time.
Greater Flexibility
With a longer time horizon, you have more flexibility to adjust your investment strategy, take advantage of market opportunities, or recover from any setbacks that may occur.
Potential for Earlier Financial Independence
By starting to invest early and taking advantage of compounding, you may be able to achieve financial independence or retire earlier than if you start investing later in life.
Tax Advantages
Certain investment accounts offer tax advantages and starting early allows you to take full advantage of these benefits over the long term.
It’s important to note that individual financial situations and goals vary, and there is no one-size-fits-all approach to investing. While starting early can provide advantages, it’s also crucial to regularly reassess your investment strategy, and adjust it based on changing circumstances and goals throughout your life.
Stephen Lowry (CFP® Professional, DFP) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Performance data shown represents past performance or simulated performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Any information provided to you was purely factual in nature. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.