- In Business Insider and Insider Intelligence’s Master Your Money Invest & Thrive Survey, millennials across all income levels say they aren’t investing because they don’t think they earn enough money.
- However, it’s never been cheaper to start investing, and time in the market is an advantage that can’t be overlooked.
- Waiting until you have “enough” money to invest is dangerous, because it shortens your time horizon, increasing your risk at the same time.
- Investing regularly is much like building any other habit – you start small, get used to it, and go from there.
- This article is part of a series focused on millennial financial empowerment called Master your Money.
Time is everything in investing. No, not plotting for the perfect moment to buy into the market, but simply getting in whenever you can and staying put.
Of course, you need money to invest, too, but probably less than you think. The financial barrier to entry is the lowest it has ever been. Some of the best investment apps allow investors to build a diverse portfolio with $US10 or less.
Just starting to invest, no matter the dollar amount, means your money has time to grow â€” and that’s crucial.
When Business Insider and Insider Intelligence asked millennials (defined as ages 21 to 38) about their investment behaviours for the Master Your Money Invest & Thrive Survey, many said their income is part of what’s holding them back from investing.
In total, 41% of the 2,020 survey respondents said they’re not currently investing in any financial products. Among them, 48% said they don’t have enough money. Exactly half of the non-investors said earning more would cause them to start.
The respondents also cited other reasons for not investing, including focusing on savings and not understanding how to invest. But even across personal income levels, up to $US100,000 a year, “I don’t have enough money to invest” was the top choice.
These millennials might be missing the point.
It’s understandable to hold off on investing if you’re struggling to pay basic bills. And debt payments and building up an emergency fund of at least three months’ worth of expenses should come next in most cases.
Beyond those fundamentals, many experts argue that investing in stocks and bonds â€” especially when you’re young â€” is a necessity.
The magic of compound interest
Whether your financial goals include retiring comfortably at 65 or quitting work to travel the world in your 30s, the simple truth is that the earlier you start saving and investing, the easier it will be to reach your target number. There will be losses to contend with, but generally, the stock market goes up over time.
It may sound premature to squirrel away money for a far-off goal when you’re young, but a few years could make a difference of tens of thousands of dollars, or more, thanks to compound interest.
Writing for Business Insider, Malik S. Lee, a certified financial planner, explained it perfectly.
“Compound interest empowers your portfolio by applying interest on top of your principal investment. The same interest rate (lower or higher) applies to the new balance, and the money snowball begins,” Lee wrote.
“But your money can only compound if you give it time to do so. If you wait to invest, you have to rely on above-average returns to do the heavy lifting of increasing your account balances … which is a dangerous strategy, because that means taking on more risk to achieve your goals,” he continued.
The value in building a habit
Research shows that investing a lump sum is generally a more lucrative strategy than splitting your money into smaller investments over time â€” a method called dollar-cost averaging â€” in part because it gives your money more time in the market. But most people don’t have the ability or confidence to invest a ton of money at once, and that’s OK.
Think about investing like working out. You don’t start with the heaviest weights at the gym or set out to run your fastest mile before mastering your pace. Habits start small and momentum builds. Just because you can’t hit those benchmarks on Day 1 doesn’t mean you shouldn’t start. If you wait for the perfect moment to take the plunge â€” well, you might learn there’s no such thing.
Stocks give you an opportunity to grow your money, but they rarely behave predictably. It’s very difficult, if not impossible, to pinpoint the perfect time to invest before the moment is gone. Buying into the market when you can, at a risk level you’re comfortable with, will help you take in all the potential gains over time.