Advantages Of Investing and compounding In Your Twenties.

When time is on your side…

Photo by Mathieu Stern on Unsplash

The earlier you start investing in the market, the better your returns will be over the long term. If you start investing at the age of twenty, you have solid forty-five years of compounding before you need the money to fund your retirement. 

You might think that you can save your way to retirement. You sure can! But Why not let your savings help you get there faster as savings don’t pay much interest compared to investing. The only thing with investing is that any sudden losses aren’t covered, whereas, in a savings account, your savings are covered up to $250,000 by the federal government. 

Most of us get introduced to investing through our employer-sponsored superannuation funds. You can also manage your retirement account through a self-managed super fund if you believe that you can do better than the professionals. Many investors invest through taxable investment accounts and pay the capital gains tax when they profit from their investments. It is because they invest with their after-tax money. 

There are a few options available for newbies to consider before going headfirst in investing. 

  1. You can work with an investment professional who will recommend your investments based on your investment objective. 
  2. Now we have Robo-advisors that can recommend you assets to invest in. 
  3. Or you can open up a brokerage account with your bank and invest in whatever asset is available to you in your geographical location.

Longer time available to let your money compound — 

The compound effect is one of the main reasons you should start investing as early as possible. Compound interest is when you invest your earnings from an investment back in the asset for a bigger payout in the future. When you reinvest your return back into the market, three things happen to you and your portfolio. One, your portfolio grows every quarter or whatever the dividend timeline is. Two, you save money on capital gains tax as your gains are never realized in the form of cash. Three, perhaps the most important in my view, you condition your brain to delay the feeling of gratification. It can take a very long time to train yourself to focus on long-term prospects in investing instead of indulging in the short term.

Fail early and learn early — 

When you’re starting to invest in your 20s, you’re not gonna be a pro from day one. You’ll go through many phases, from FOMO to employing day trading strategies in your brokerage account and incurring more in fees than your profit. Everyone goes through the learning curve, and chances are you’re not any different from the rest of the newbies in the game. 

You can make mistakes and recover reasonably easy as you have time on your side in your early years, whereas, if you were to make bad investment decisions in your 50s, you might not have enough time to recover and stay on your journey to retire on time. 

You have the upper hand on the new tech companies — 

Since the start of Covid-19, retail and professional investors have poured a record amount of money into the financial markets. The global investor base is becoming more diverse as more and more younger investors are starting to invest. Many of the young ones are tech-savvy and have access to a number of new classes of investment such as cryptocurrency, all the meme-coins and now NFT’s.

In conclusion, the pros of investing in your 20s far outweigh the cons. You don’t have to start big; as long as you get started, you’ll be able to enjoy the returns from compounding in your 40s and 50s. If you don’t know what to buy or what not to buy, how about you buy everything via index funds, let it compound and don’t check it.

Check out other articles: The Jolly Investor



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