(As featured in the National.)
When you are young, you feel invincible. You look great, you feel healthy and you want to have fun. What you probably don’t want to do, is to consider your retirement – 3 or 4 decades distant and put a sizeable chunk of your salary aside to prepare for it.
The irony is that right now is almost certainly the best possible time for you to start investing. Time is your friend.With every passing year, the companies that you will invest in, through the stock market, will be paying out dividends and growing their businesses. If you have not yet started investing, you are missing out on that growth.
However, if you start building an investing habit now, you will dramatically change your future. By harnessing the power of reinvesting those dividend payments and regularly adding a portion of your salary, you can start building wealth in an exponential way.
Invest as much as you can
As for how much you should be investing – ideally as much as you can. But if you’re new to this, start off with 10% of your salary. You’ll find that you quickly get used to living on the rest. Then try and push that up another percentage every month or two. If you aim to reach a savings rate that is a similar proportion to your age (30% for a 30 year old), you will accumulate wealth very quickly, and still be able to enjoy life along the way.
You can’t predict the future
We do not know which companies will be the winners, nor the losers of this next year, and definitely not the the next decade. What we do know is that if you stick to low-cost index funds, you will own a slice of all of the companies listed on their respective markets; Both the winners and the losers. History has shown, time and time again, that trying to pick stocks and actively outperform the market index over a long timeframe is almost impossible. Even the best known of investors, Warren Buffet and his flagship company Berkshire Hathaway seems to have been soundly beaten by the S&P500 recently, having placed some bets in airline stocks, which haven’t paid off too well.
You can’t beat the market
If Mr Buffet can’t beat the market, neither can you. So don’t try. Buy the index, keep your costs down and invest regularly. A few years of savings, invested now, with time then working for you will likely be the equivalent to decades of savings at the end other end of your career. So commit to putting aside a portion of your salary before the rest of your bills go out. Pay yourself first.
There’s more to life than money
Learn the basics of passive index fund investing, and then you can almost put it on autopilot and get on with enjoying your life. After all, there is much more to life than money!