Sunday 2 August 2020

Why you should start investing NOW!

Investing is seen as a way to generate better returns on your money by taking on a certain amount of risks. If you do not earn a huge income that can multiply your money fast, investing is a great way than putting your money in the bank especially considering the current situation.

With many Banks having a lower interest rate right now I think what’s important is to know that your emergency savings have been set aside, you don’t want your remaining money to erode with the low interest rate that the bank is offering.

If you can start investing early there is this thing called compounding interest and it is what will make your money grow in the long term. So compound interest is the addition of interest to the principal sum and it is the result of reinvesting interest rather than paying it out so that interest in the next period is then turn on the principal sum plus the previous accumulated interests

So for example you invest $1000 and the Stock gives out a dividends of 3%. So 3% of 1000 is $30, and so the next 3% that you will earn will be 3% of $1030 and so this means your money grows with no action from you as the interest is compounded.

So if you are able to start young you have a longer horizon for compound interest to take place. Another reason why you should start investing when you are young is because you are able to have more time to learn from your mistakes. It is impossible to not have any mistakes when you invest especially so when it involves your emotions. You will be able to find the best investing method for yourself and starting early is very beneficial.

To start investing when you are young means that you can go through a lot more ups and downs of the market, Giving you more experience in handling fluctuations.

For example in my case I am 25 years old this year and COVID-19 has really made me realise that the stock market can be so irrational where there can be ups and downs. The market is also not predictable as many expected a crash again but so far, it hasn't been going down since March 2020.

When you start investing early you can take on more risk in your portfolio and this means that they can be a higher chance of growth for your money. For example if you’re young you are more likely to buy stocks like Tesla and technology stocks which carry a greater risk then blue-chip stocks. Similar to having a longer horizon, The longer the Time Horizon, the more aggressive, or riskier portfolio, an investor can build.

Lesser liabilities and dependents hence money can be channeled more into your investments.

There is this example where you take hundred minus your age and that is the amount of stock/equities you should be holding in your portfolio. So with a higher age means that the amount of money in stocks will be with used and therefore reducing the risk that you’re holding. Whether or not your investing style is passive or active, doing something to it is always better than saving it at an interest rate of 0.05%.

Definitely, doing your own research and risk analysis is necessary and do be prepared for fluctuations that will happen so do not invest with money that you will need in the short term.

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