Why should you start investing early?

The most precious commodity in the world is time. Everyone has finite time. We cannot buy nor sell time. We only can make use of what we have to make the best out of it. So why should you “waste” your precious time away to invest.

My answer: If you don’t put in the hard work today when you are young, capable, how can you make sure that the future, older you will do it for the even future and older you?

We will always put out excuses to stop ourselves from starting. Have you told yourself something similar before?

“I’m not earning money yet”

“Investing is too hard to understanding”

“I still have a lot of time, I will start when I’m working”

You see, it’s never a good time to start. There will never be one. We should just START. Take that leap of faith and go into it. This is because, once you start it is easier for you to correct yourself on the way and learn from your mistakes. Mistakes can help you find the correct eventually as long as we persevere. There are also 5 main reasons why you should begin today:

Power of inflation

Remember the time when a bowl of fishball noodles cost $0.50 at your primary school canteen? Or the time when a cup of iced milo costs $0.80? Well we don’t see that anymore and that is largely due to inflation. Inflation simply means that over time our money erodes in value and we can buy less things with the same $10 in the future.

The scary thing about inflation is, it slowly eats our money away. If you have $1000 in a bank account today that gives you 0.5% interest, with inflation rate at 2%, you are losing -1.5% every year simply by putting your money in a bank account doing nothing. Your $1000 today will become $860 in 10 years time.

The aim of investing should minimally beat inflation so that our purchasing power or the value of our money do not get eroded. 

Power of time value of money

$1 today is worth more than $1 tomorrow. If today you have won TOTO of $1,000,000 dollars and you have two options (1) Receiving the money today or (2) Receiving the money in a year’s time, how would you choose?

If you said you wish to receive the money today, you have made the correct choice. Not because you can spend it immediately but because you can deposit this $1,000,000 dollars into a fixed deposit that give you 1% return in a year, and after a year you will receive $1.01 million, $10,000 more than what you would have. Time plays a huge role in the investing game.

The more time you have, the more you are able to convert time into money. 

Power of compounding

Compound interest is an interesting concept in growing our money. If you deposit $1,000,000 today at a bank that gives you 1% interest this is how it will play out. 1% interest = $10,000

Year 0: $1,000,000

Year 1:

$1,000,000 (Principal)

+ $10,000 (Interest)

= $1,010,000

Year 2:

$1,000,000 (Principal)

+ $10,000 (Interest)

+ $10,000(Interest) + $100 (Interest on Interest)

= $1,020,100

By compounding, you would have receive $1,020,100, $100 more interest because you have left the $10,000 from the first year untouched. Every time you do not touch the interest that was given to you and kept it in your bank account, you will receive more interest because (1) Interest was given to your original principal of $1,000,000 (2) Interest was given to the interest that was previously given to you.

Leave your money back into the investment vehicle, do nothing, and you will be rewarded even more money than what you would originally have. 

Power of education

Starting investing early does not mean that you will have to put in money immediately. You can always start by educating yourself. Nowadays, paper trading or paper investing has been made easy by several online platforms that offer you a way to start buying and selling stocks virtually. You do not have to fork out a single cent to use these platforms and practice – although I feel that you will only begin to learn more from the entire process if you have put in a small nominal amount, any amount that you are comfortable to lose. This is because when there is real money involved, you will feel more pain when you make a wrong decision. You will remember those mistakes more vividly and learn from them.

Investing is also not a one-size-fit-all process. How you invest depends on your personality, temperament, amount of time that you have and many other factors. This is a journey – the earlier you start, the better you can understand yourself and find a style that suits you.

Educating yourself adequately today can prepare yourself for more battles to come

Power of starting small

When you have a small capital you can make more mistakes and the impact is not as great as when you have a big capital. Imagine if you only start in your 30s with a $200,000 portfolio and zero knowledge in investing. One big mistake can hurt pretty bad as compared to having a $2,000 portfolio.

Making mistakes with a capital of that size is going to hurt. Why not just start small today and start making mistakes that you can avoid so that when you have a big capital in the future, you have use it to your advantage.

Losing an apple today is better than losing your entire farm tomorrow. 

Starting early gives you an advantage now for the problems later in life. You do not want to start figuring things out when you have other more pressing matters on your plate such as your career, your family or other commitments that need a lot of your time and attention. Do it when you are young and free, even if you are struggling to start. Start picking up a book, reading finance blogs, read about thoughts of people with similar struggles. You do not have to fight this battle alone, always know that you have somewhere to fall back on in the personal finance community and that there is someone who faced the same issues and have found a way to solve. Actively seek advice from people on tips of how to manage your own money, and apply in a way that suits you the best. We can achieve more by sharing around the best practices that are available!

If I have seen further than others, it is by standing upon the shoulders of giants



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