The best time to start investing was always 10 years ago. But the second-best time is today.
This might sound cliché, but it’s true, and it’s backed by some compelling maths.
Firstly – Why Invest at All?
‘Investing’ is a pretty broad term. A general definition of investing is: ‘the act of distributing resources into something to generate income or gain profits1’
Investing is different from saving, in that Investing is intended to have your money working for you, and that usually involves some level of risk.
So, at its heart – Investing is the process in which you increase your wealth. Investing relates to the ‘Wealth Accumulation’ stage of the Wealth Building Blocks. The main Building Blocks this relates to are Superannuation, Investing & Property.
Time – Why it matters more than anything else.
You can usually invest only two things: Time & Money. And you usually already have to invest time to make money. So, time is the essentially the most important resource you have. And that is why starting as early as possible is the most important thing you can do.
Many of us try to fight an impossible battle against time. Investing is one of the very few cases where time is on our side.
Compounding – Maths you can’t argue with.
You might remember this dreaded word from your math’s textbook from high school. We’ll spare you the boring equations, but it’s important to understand the power of compounding to better understand investing.
I’m just going to show two examples:
Imagine you want to invest $10,000 in a share portfolio. For hypothetical purposes, we’ll say that you invest in an Australian Share ETF. The overall Australian Share market – for the last 124 years (since 1900) has on average returned roughly 13%2 p.a. Remember that is through two World Wars, depressions, financial crises and Pandemics.
Past performance is not a reliable indicator of future performance but for comparisons sake, let’s think about this $10,000 you have ready today. You can invest that now or go on a nice holiday overseas. It might take you another 3 years to save that $10,000 up again, and that’s when you invest instead.
Maybe you’re 30 years old and want to retire at 55. You can’t access your Super until you’re 60 – and you’re relying on these shares and some savings to tide you over for at least those 5 years. Let’s look at how that $10,000 is stacking up.
| Now | 3 Years | 25 Years | |
| Invest now | $10,000 @13% | $212,305 | |
| Go on holiday | $10,000 @13% | $147,138 | |
| Difference | $65,167 |
*Calculated using money smart compounding calculator (annual compounding)3
You might be thinking – well that’s a fair bit of money in either case. And you’re not wrong. 22 years is still a good long investment time horizon – and starting in 3 years would be better than not starting at all.
But look at the difference that 3 years can make. $65,167 is a huge amount in a relatively short time frame difference. And remember that it’s just an initial lump sum investment. If you are regularly adding to your investments, the benefits of compounding are even greater.
It just goes to show that with investing, earlier is always better. It’s important to remember that in those 25 years – there might be another depression or pandemic – which might mean your investment drops by a huge amount. This just gives another reason to invest earlier – because you then have a longer time to ‘ride out’ any dips in the market.
The best part about all of this – you’re letting time do the work for you. You might have to sacrifice that holiday, but provided you’ve picked a good ETF and are happy with the strategy, you can just sit back and let time work it’s magic.
If you’re wondering about getting started with Investing, book a session with one of the Wealth Maximiser Wealth Coaches today. Remember, the time is now!
Book a Session with a Wealth Coach Today
Disclaimer
This information is of a general nature only and does not take into consideration your objectives, financial situation, or needs. Before acting on this information, you should review the Wealth Maximiser Financial Services Guide and Wealth Maximiser Terms & Conditions and consider this information in light of your own objectives, financial situation, and needs. Wealth Maximiser is operated by NobleOak Services Limited ACN 112 981 718 AFSL 286798.
- Definition of Investing:
https://www.investopedia.com/terms/i/investing.asp
- 124 Years of Historical Returns:
https://files.marketindex.com.au/files/statistics/historical-returns-infographic-2024.pdf
- Compound Interest Calculator:
https://moneysmart.gov.au/budgeting/compound-interest-calculator