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So, you’re ready to start socking your money away and watch it grow! Some people have the desire to become investors but just aren’t sure when to start.
How do you decide when it’s the best time to begin your investing journey?
If you’re a rookie to the investing world, it might seem a little intimidating, but don’t worry! We’re here to ease your anxiety so you can start finding high return investments with confidence.
When Should I Start Investing?
The short answer to this one is now! But, you probably want a more detailed answer.
In general, when it comes to investing, sooner is better. The longer your investments can grow before you’ll need them, the more money you’ll have later.
If you wait until ten years from retirement, the money you put into those accounts doesn’t have a whole lot of time to grow. But, if you’ve got 30 years until that special date, you can invest less per month and still come out way ahead thanks to the magic of compound interest!
That said, if you don’t have 30 years, don’t despair – you can still make huge gains toward your goals. But don’t wait – get started today!
Read also: How We Saved Over $750,000 in 7 Years (Investing Early Changed Our Lives)
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What Exactly is Compound Interest?
The key to understanding investing lies in something called compound interest.
The interest you earn each year gets added to your principal balance. As your principal balance grows each year, you make more money on it. Your money grows at an increasing rate with each passing year.
Recognizing the power of compound interest is important because when you see how much your investments will benefit you, you’ll be willing to make short-term sacrifices for long-term gains.
Let’s look at a couple of calculations to illustrate this. Imagine you earn an average of 8% annual returns on your investments that compounds monthly. Here’s how it all shakes down, given different amounts of time:
Invest $250/month for 20 years: Total = $148,236 ($60,000 principal)
Invest $250/month for 30 years: Total = $375,073 ($90,000 principal)
Invest $250/month for 40 years: Total = $878,570 ($120,000 principal)
Read also: This Secret Weapon Can Turn You into A Millionaire (Without Doing Anything)
The more time you can give your money to grow, the better.
Obviously, the 40-year option means you’re contributing twice as much than in the 20-year option, but your total accumulation is much more than double the amount of the 20-year option!
In fact, it’s nearly 6X the amount you’d end up within 20 years because your interest has 20 years to earn interest, too. That’s why it’s so crucial to start investing early!
Want to try a fun exercise?
Plug various numbers into online interest calculators to learn just how much your money could compound! Be sure to check different interest rates, too. That compounded interest is money you didn’t do a thing to earn. All you had to do was invest it and leave it alone.
As you can see, investing isn’t only about the money you put in, it’s about what happens to your money once you’ve put it into good investments. Time is essential to giving your investments the opportunity to grow.
Types of Investing
You know you don’t want to procrastinate on investing for your future, but you might be wondering what types of investments to try. Let’s take a look at a few.
One way to get your investments rolling is, of course, with an employer-sponsored retirement savings plan. 401(k)s and similar alternatives are great for several reasons.
They’re usually tax-deferred, although some employers offer a Roth version, meaning you pay taxes on the front end. There are pros and cons to both so be sure to do some research and think about your goals.
An awesome perk of investing in a 401(k) is that many companies offer a matching contribution. Whatever portion of your salary you choose to invest, the company puts in more funds to match it.
For instance, when you invest 3% of your own money, the company will add another 3%. That’s free money you should never leave on the table. If your employer offers this as an option and you aren’t taking advantage of it, stop what you’re doing and go sign up now.
A fairly simple way to invest in the stock market is through index funds. They allow you to invest in multiple stocks at once, without the hassle of purchasing each individually. You can even invest in an index fund that mimics the S&P 500. Choosing different categories within the funds is another way to add a level of diversification.
Read also: ETF Index Investing For Beginners (How To Start DIY Investing)
Dividend Paying Stocks
Another way to get into the stock market is buying dividend stocks. In addition to any return on investment you may make once you sell the stock, some companies pay a “dividend” at regular intervals, usually quarterly. This is a great option because even in years with lower returns, you may still receive dividend payments!
Traditional Real Estate
One way to invest your money is through buying property. When you purchase a home or apartment building, you’ll earn money through the rent paid by tenants.
This isn’t always a slam-dunk type of investment. How successful you are depends upon various factors such as the price you pay for the property, cost of repairs and updates, and how much you’re able to charge tenants. But traditional real-estate investing is definitely a good option for many people.
You’ll want to be sure you have the time to devote to be a landlord, of course, and if your property has frequent turnover of tenants, those unoccupied months of searching for new tenants can really eat into your profits.
Crowdsourced Real Estate Investing
While a traditional brick-and-mortar real estate property can be profitable, it can also be a time sink. If real estate sounds like it’s up to your alley, but you’re hesitant about the drawbacks, crowdsourced real estate might be a perfect compromise. You can gain a ton of the benefits of being a landlord without all of the headaches of actually being a landlord!
Investing Early for the Win
The sooner you can start investing, the more time you’ll give your money to grow. Through the power of compound interest, investing can be a lot of fun, as it lets your money make even more money for you!
Kate Underwoodworks as a freelance writer and a staff writer at Club Thrifty, a popular blog dedicated to teaching others how to spend less and travel more.
Have you started investing? What is your favorite investment right now? Share with us in the comments below!