Investing Early vs. Late

When is the right time to invest — early in life or later on? Does it even really matter? This age-old question has puzzled many aspiring investors and may have even prevented some from taking that crucial first step. 

Today, Benzinga debunks myths and sheds light on the truth of timing in investments. Whether you're just starting out or pondering late-stage investing, this comprehensive guide will equip you with the insights you need to start investing successfully.

Investing Early vs. Late: Does it Really Matter?

The short answer is: yes, it does matter — with an important caveat. The earlier you start investing, the more time your investments have to grow and compound, which can significantly increase your returns over time. This is particularly true when investing in assets that offer the potential for long-term growth, such as stocks.

Compound interest, often described as interest on interest, is the mechanism by which the value of an investment increases exponentially over time. This means that the returns you earn on your investments start earning their own returns. The power of compounding depends on the time the money is invested, which is why starting early can have such a profound effect. It can also be boosted greatly by reinvesting dividends and other investment income.

Here's a historical example using three investors, John, Mark and Dave. John started investing in 1985 via an S&P 500 index fund with $10,000. By June 2023, 38 years later, his initial $10,000 investment had compounded to $563,270, for an annualized 11.06% return. He achieved this by not avoiding panic-selling and reinvesting dividends. 

On the other hand, Mark was a bit of an investing late bloomer. He didn't start until 2003. Despite making the same investment as John did in an identical S&P 500 index fund, he only had 20 years of growth to work with. As a result, his final portfolio value was smaller at $69,323.

However, while starting investing early clearly offers this mathematical advantage, it does not mean that those who start investing later cannot also make significant financial strides. The key factor here is how effectively and regularly you invest. A disciplined, consistent approach to investing can yield substantial benefits, even when started later in life. This means making steady contributions and investing as frequently as you can.

Take Dave for example. Dave also started investing in 2003, which gives him a 20-year time horizon if he also retires in 2023. However, Dave understood that despite starting late, he could make up for it by aggressively saving and investing consistently. To that end, Dave committed to investing $1,000 every month in an S&P 500 index fund.

The results? Dave's $10,000 initial investment in 2003, plus monthly $1,000 contributions ballooned to $1,031,735 by the end of 2023, beating both John and Mark handily. This example goes to show that despite a late start, savvy investors can still come out ahead by practicing good financial behaviors: staying the course, consistently contributing and reinvesting dividends.

Why Should You Start Investing as Early as Possible?

Investing is a powerful tool for building wealth. Starting early can enhance its benefits. The main advantages of early investing come from compound interest and time. When individuals invest early, their money has more time to grow. This can lead to larger returns over the long term. Additionally, starting now allows for a balanced approach to risk. This makes it easier to recover from market fluctuations. Early investing also helps develop disciplined saving habits. It promotes a deeper understanding of financial markets. These skills can be valuable throughout life. In the following sections, we will discuss key reasons to invest sooner rather than later. This decision can greatly impact your financial future.

Compound Interest

Often referred to as the eighth wonder of the world, compound interest is the process where the interest on your savings earns interest itself. This process creates a snowball effect, allowing your portfolio to grow exponentially over time. The longer your money is invested, the more time it has to compound and increase your returns. Consider reinvesting any dividends or interest income as soon as received and maximizing consistent contributions.

Time Horizon

The earlier you start investing, the longer your investment horizon, which is the amount of time your money is put to work growing before you need to withdraw it. A longer time horizon typically allows for more aggressive investment strategies, as market downturns can be offset by potential future upturns. This process allows you to take on more risk for potentially higher returns over a longer period of time.

Risk Tolerance

Investing earlier in life usually means you can afford to take more risks, such as holding a higher proportion of your portfolio in stocks. Younger investors typically have a higher risk tolerance because they have more time to recover from any potential losses. This ability to handle market volatility can open up opportunities for higher returns by investing in riskier assets. 

Sequence of Return Risk

This risk entails receiving lower or negative returns early in a period when withdrawals are made, such as during the initial stages of retirement. For a retiree, a series of market downturns one after the other can wreak havoc on their plans. One of the simplest ways to mitigate this risk is to start investing early. With more time in the market, early investors are better positioned to weather periods of poor returns without having to withdraw their investments.

Financial Discipline

Investing early encourages a habit of financial discipline. Regularly setting aside money to invest at a young age can help develop budgeting skills and a long-term mindset, which are important aspects of personal finance that can benefit you throughout your life. 

Why Should You Avoid Investing Late?

Investing can build wealth over time. Timing matters for getting the best returns. Many people wait to invest. They often think they can find a better time later. However, delaying investments can hurt financial growth. It's important to see the costs of waiting. The sooner you invest, the more you gain from compounding interest and market growth. This guide will explain the benefits of starting to invest early. It will also show the risks of procrastination and the losses from delaying. Starting early can lead to a more secure financial future.

Lost Compounding Benefits

Investing early allows your money to grow exponentially over time through the power of compounding. The longer your money is invested, the more it can grow, making a significant difference in your long-term returns.

Reduced Risk of Missing Financial Goals

Starting early gives you more time to build wealth and reach your financial goals, such as retirement or buying a home. Delaying can put these goals at risk, especially if you need to catch up quickly.

Less Time to Recover from Market Volatility

Markets can be unpredictable, and investing early gives you more time to weather market fluctuations and recover from downturns. Starting late means you have less time to recover from potential losses.

Smaller Investment Contributions Required

By starting early, you can take advantage of smaller, consistent contributions rather than needing to invest larger amounts later to make up for lost time.

Increased Financial Security

Early investing helps build a financial cushion, leading to greater financial security and peace of mind. Delaying your investments can lead to stress and uncertainty as you approach key life milestones.

It's Never too Late to Start Investing

While starting to invest early has its advantages, it's crucial to remember that it's never too late to begin your investment journey. Many people may feel discouraged because they believe they're behind or they've missed the opportunity to achieve substantial growth from their investments. However, this is far from the truth. 

Investing is not just about when you start but also about the consistency and dedication you put into it over time. It’s about making regular contributions to your investment portfolio, staying diversified, being patient and allowing the market to do its work. Even if you start later in life, the power of compounding can still significantly benefit you. Plus, individuals often earn more in their later years and therefore have more to invest, so with discipline you can catch up. 

The most important step is taking the decision to start, regardless of your age or circumstances. From that point on, with good investment behaviors and a well-thought-out plan, you can still reap the benefits of investing. Remember, everyone's financial journey is unique, and it's not about where you start, but rather about making the decision to begin.

Start Investing with Benzinga's Best Brokers

Investing can be intimidating for beginners. However, with the right help and tools, anyone can start growing their finances. Benzinga's Best Brokers offers a list of top brokerage platforms for new investors. These brokers have easy-to-use interfaces and helpful educational resources. They also provide strong support for those new to investing. Whether you're interested in stocks, ETFs, or cryptocurrencies, picking the right broker is important. This guide will outline the features and benefits of Benzinga’s top choices. It will help you make informed decisions as you begin your investing journey.

Plus500

Plus500 is an online trading platform. It offers Contracts for Difference (CFDs) on stocks, indices, commodities, and cryptocurrencies. The platform is easy to use, suitable for beginners and experienced traders alike. Users can navigate trading seamlessly. Plus500 is available on both desktop and mobile devices. Traders can manage their portfolios anytime and take advantage of real-time opportunities. The platform focuses on simplicity and efficiency. It provides market analysis tools for all trading levels. Plus500 operates under strict regulatory oversight. This increases its credibility and ensures a safe trading environment. The regulations protect traders and promote transparency. With its user-friendly interface and trusted reputation, Plus500 is a top choice for online trading.

Interactive Brokers

Interactive Brokers is a top online brokerage firm. It provides low-cost trades and various trading instruments. Both professional and retail investors can use it. The platform is advanced and suitable for different users. It also allows margin trading, helping investors manage risk and increase returns. Interactive Brokers offers strong research tools. These tools help traders make informed decisions across different asset classes, including stocks, options, futures, and forex. A notable feature is global market access. This allows trading in multiple international markets, creating more opportunities for investors. Overall, Interactive Brokers is a solid choice for efficient online brokerage. Whether you're an experienced trader or a beginner, it offers the necessary tools and resources for the financial markets.

Public.com

Public.com is a social investing platform. It makes investing easy for everyone. Users can buy fractional shares of stocks and ETFs. This allows them to invest in favorite companies with a small amount of money. It is great for beginner investors. Public.com offers commission-free trading. Users can invest without hidden fees. The platform has a social feed for sharing ideas and tips. This helps beginners learn from experienced traders. Public.com aims to democratize investing. It empowers people to manage their financial futures. The platform provides resources for beginners and encourages open dialogue. Public.com is building an inclusive investment environment for both seasoned and new investors.

Moomoo

Moomoo is a trading platform for retail investors. It provides advanced tools for both beginners and experienced traders. One main feature is commission-free trading. This allows users to invest without high fees. The interface is user-friendly and easy to navigate. Moomoo also gives access to real-time market data. This helps traders make informed decisions. There are many educational resources for all investor levels. These resources improve trading skills and knowledge. Moomoo combines advanced analytics, commission-free trading, and a focus on education. It is a good option for anyone starting or wanting to enhance their trading strategies.

Webull

Webull is a commission-free trading platform. It offers a range of investment options, including stocks, ETFs, and options. The platform has advanced trading tools for both beginners and experienced investors. Its user-friendly interface makes navigation simple. Real-time market data keeps users informed for timely decisions. The mobile app allows traders to manage their portfolios on-the-go. Webull also has a strong community where users can share insights and strategies. Whether you're new to investing or want to improve your skills, Webull provides the necessary tools for success. Experience modern trading with Webull today!

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