5 Top Reasons Why You Should Invest Young in 2024
Everyone knows investing is to make money. But only a few know, investing young is how you become rich.
The secret is, young investors have a few great advantages that most investors nowadays wish that they know when they are still in their 20s, or still studying in college.
(The worst mistake I have done in my investing journey is to start too late. I brought my first stock in my 20s, whereas I should have started investing when I reach my 18th birthday.)
You should start your investing journey even if you are still in college with just over $1,000 to invest, the time when you have little money to invest. The earlier you start investing, the greater your advantage. Whether you investing in REITs, dividend stocks, or growth stocks, it doesn’t matter.
Even now when you are in your 30s or 40s, it is still not too late to start. In fact, you should start right now!
And here is why!
5 Reasons Why You Should Invest Early When Young
Amount many of different reasons that investing young is the best thing you do for your financial future. Here are the 5 best reasons investing early gives you a major advantage over all other investors
Here are the 5 Best Reasons Why You Should Invest Young:
- Higher Risk Tolerance
- Gain Experience
- Time is Your Friend
- Tech Savy
- Secured Future
1. Risk Tolerance
An investor who just finished college and is in their 20s will invest very differently from another investor who is in their 50s preparing for their retirement.
Young investors have a much higher risk tolerance and are capable of taking much more risk than older investors.
Why is it so?
Old Investors
An old investor who has worked 30 to 40 years of their life will have a 5-figure to a 6-figure invested in stocks. These investors are nearing their retirement age, and any mistakes in their investing will greatly impact their retirement plans.
Their life-long savings will be at stake in every investment decision they make.
Thus, an older investor will only have the option to invest in safer alternatives such as blue chip stocks and Exchange Traded Funds (ETFs).
Their risk tolerance is low.
Young Investors
On the other hand, a young investor who has just finished college, or just started working will only have a few thousand dollars to invest in stocks. These investors have years ahead before they will be reaching their retirement.
Even if they lose all they have invested, they can earn it back pretty quickly (no, I am not asking you to lose money, it is just an example of the worst-case scenario).
Thus, a young investor has the option to invest in slightly riskier alternatives, such as technology stocks, growth stocks, and other stocks with a lower market cap.
Their risk tolerance is high.
2. Gain Experience
Experience is what makes us grow to be stronger and wiser. Young investors have the opportunity and time to read more books about investing and learn from the pros.
Learning to invest is done in 2 different ways:
- Reading and learning from other’s experience
- Doing and learning from your own success and failures
Although learning from the experience of other through books are very important. Sometimes learning by doing the investing itself is just as important.
With all the knowledge you have learned, practicing what you have learned will help you to understand the process better. And even if you have done any of the steps incorrectly, or have brought a bad stock.
Learning from your failures can make you grow wiser as a investor.
Warren Buffett, the Billionaire investor who was the 3rd richest person in the world take lessons from his own investing mistakes and learn from them as well.
Investing at the age of 11, Warren Buffett learns that when he buys a great stock, he should let it grow in value and not panic sell after getting a slight profit. With every year he invested, he grow his knowledge of investing. Eventually, by investing young he has become a Billionaire.
You may or may not be able to become a Billionaire in the future.
But investing young will definitely allow you to be wiser in investing and eventually become successful in investing.
3. Time is Your Friend
Time is the key ingredient that makes investors rich. When you are young, you have time at your side. And with time, you will have the 8th greatest wonder on earth as your friend in investing.
If you have guessed, your friend’s name is,
“Compounding”
Time is the key to why Warren Buffett and many other investors are so rich. Time is essential for the power of compounding to take place. And with more time on your side, the more you can compound your returns on your investment.
“Compounding is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”
Albert Einstein have famously quoted.
Want to know how powerful compounding actually matters for your return on investment?
Let’s have a look at the following example.
Example of the Importance of Compounding
John and Jane are of the same age:
- Both invested $10,000 in the same stock called ABC Company.
- ABC company gives a 10% return on investment every year from the year 2020 to 2050.
John: invested $10,000 in the stock at age of 20 in the year 2020.
Jane: invested $10,000 in the stock at age of 30 in the year 2030.
Both John and Jane sell their stock when they are 50 years old in the year 2050:
- John received $164,494 in the year 2050.
- Jane received $67,275 in the year 2050.
John received $164k, which is almost 3 times the amount Jane received which is just $67k. Just 10 years difference in the compounding interest has made John 3 times richer than Jane.
This is the power of compounding.
4. Tech Savy
Young investors are almost always ahead of the trend of the newest investing resources available on the web.
These online resources and online trading platform gives their users countless research tools for both fundamental and technical analysis.
Tools which was only available to big brokerage firms are now available at the touch of our finger tips.
Young investors, especially those who are tech-savvy will have access to research tools that older investors have never heard of. Thus, giving these smart young investors advantages over many other investors who are much more experience.
Furthermore, young investors are given the opportunity to learn investing not only from books but also socially from other investors who are available through social media and chatrooms.
Being tech-savvy has opened many doors of opportunities for young investors. This is a major why you should start investing when you are young.
5. Secure Your Financial Future
Investing young so you can secure your own financial future is probably the main reason why you should even start investing.
There are times in life when you will urgently need money. It can be for your kid’s education, or to fix that broken window.
At an early age, you have little to no financial burdens. But as you grow older, you will start a family and buy a house, etc. The household expenses will depend on you. Paying your mortgage, kid’s education and car loan are just some of the few expenses you cannot run away from.
Most of the time, after paying for all the essentials, you will have a couple of hundred to a few thousand for savings or investing.
(PS. If you have trouble saving money to invest, probably you can check out this article which teaches you how to save $10,000 in one year.)
Investing young give you to have an head start over your peers, which usually is the reason why some are rich and some are not.
Having a bigger nest egg earlier gives you a bigger financial buffer, which allows you to secure your own financial future.
Eventually, this will help you to prepare for your retirement.
(PS. An emergency fund can also help you in securing your financial future, read our articles on how to create an emergency fund and rainy-day fund to learn how)
Prepared To Start Investing Now?
Start investing, start young is the key to your financial success. With so many advantages of starting to invest while you are young, I can’t see why procrastination on investing will do you any good.
If you have not started investing now. You really should.
I regretted that I started my investing journey too late. I don’t want you to do the same mistake as I have done, because of these 5 reasons.
5 Reasons Why You Should Invest Young:
- Higher Risk Tolerance
- Gain Experience
- Time is Your Friend
- Tech Savy
- Secured Future
But if you are still unsure, you can check out my other articles on investing.
Knowledge
Knowledge of investment can be learned from books or articles like this one. Reading can only make you wiser and smarter so that you too may be able to make the right decision in your investment.
“Education is a progressive discovery of our own ignorance.”
Will Durant
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Antony C. is a dividend investor with over 15+ years of investing experience. He’s also the book author of “Start Small, Dream Big“, certified PMP® holder and founder of IncomeBuddies.com (IB). At IB, he share his personal journey and expertise on growing passive income through dividend investing and building online business. Antony has been featured in global news outlet including Yahoo Finance, Nasdaq and Non Fiction Author Association (NFAA).
