Last Updated on July 14, 2023
If you’re hoping to build wealth for the long term, one of the best things you can do is to learn how to start investing. No matter how young you are, it’s possible to get started — and even small amounts can yield big results later.
The benefits of stock investing can help you move forward with your financial goals and set you up for future success.
5 Reasons to Start Investing
Many people wonder when to start investing. The answer is as soon as possible. Here are five reasons to get started with investing ASAP.
1. Form Good Habits
Even if you’re still in college, or newly graduated, it can make sense to learn how to start investing — even if you don’t think you have enough money to move forward. Investing now can help you form good habits that will follow you through your life.
Start the habit of investing now, even if it’s just a few dollars a week. Later, you can increase the amount that you invest. Additionally, at that point, you’ll already have a strong foundation for investing.
2. Take Advantage of Compounding Returns
One of the reasons investing early is important is because you can take advantage of compounding returns. The longer your money is invested, the more it grows.
For example, if you invest $200 a month starting at age 20 and keep investing that amount until you retire at 65, assuming 9% annualized returns, you could have a little more than $1.2 million in your portfolio. However, if you don’t start until age 30, you’d need to put in $400 a month to get a little more than $1 million in your portfolio.
3. You Have Time to Recover from Market Events
The longer you’re in the market, the more time you have to recover from downturns and other negative events. In any 20-year period, the market as a whole hasn’t trended negative. If you stick it out through downturns, you have a better chance of building long-term wealth and recovering from market events.
4. A Higher Risk Tolerance Leads to More Room for Mistakes
One of the benefits of investing early is that you can also make more mistakes. Investing is a learning process, and you’re bound to make mistakes. The good news is that if you start investing while you’re young, you’ll have more time to recover from your mistakes. It’s possible to use this time to try new things and learn what works best for you. And, if you log some losses, long-term investing allows you to make up for it with consistency and potential future gains.
5. Investing Offers a Chance to Build Financial Freedom
Finally, investing offers you the ability to build financial freedom. When you start investing early, you can start small and then build over time. Don’t just keep putting in $200 per month. When you get raises and start earning more in general, you can increase how much you invest. Increase your investments and you end up growing your portfolio faster. This could result in early retirement and the ability to meet other goals related to financial freedom.
How to Invest While in College
Many college students and new grads often ask, “Should I start investing?” In many cases, you might not realize that you can get started easily, or that you can invest with a small amount of money. In fact, it might even make sense to start investing while you have student loans.
Some of the ways to invest while young, and make it easy to start building your wealth include:
- Start small: There are a number of investing apps, including Acorns and Stash, that allow you to invest your pocket change. You don’t need to make huge investments to get started.
- Be consistent: Set up an automatic investing plan that allows you to be consistent. Even if it’s only a few dollars a week, it can help build good financial habits and set you up for better success later.
- Increase your contributions over time: While you can start by investing a small amount of money, you’ll want to grow your contributions gradually. Make it a goal to boost your investments over a specified time period.
- Use your workplace retirement plan: If you have a job and your workplace has a retirement plan, start investing in that. You can have money automatically withheld from your paycheck and sent to a tax-advantaged retirement account, building your wealth more efficiently.
- Consider using index investments to start: The best stocks for college students to invest in might not be individual stocks at all. Consider starting with index funds or index ETFs. These investments allow exposure to a wide swath of the market, which results in performance similar to wider market performance, rather than the need to pick “winners.” As you learn more about investing, you can branch out if you’re comfortable.
Bottom Line
The key to successful investing is consistency over time. If you begin a habit of investing and work to increase your investments when you’re able, you have the potential to build a portfolio that can help you reach your long-term financial goals — and maybe even retire early.
There’s no need to wait until you think you have “enough” money to get started. Learn how to start investing as early as possible and you’re more likely to be successful in the long run.