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Investing from an Early Age
Date: 4/4/2022
According to Investopedia, while money may be tight, young adults possess the asset of time. There is a reason that compounding, or the ability to grow an investment through the reinvestment of the earnings, was referred to by Albert Einstein as “the eighth wonder of the world.” A single $10,000 investment at age 20 would grow to over $70,000 by the time the investor became 60 years old at only a 5% interest rate. On the other hand, that same $10,000 investment made at age 30 would yield around $43,000. The longer money is put into the market, the more wealth it can generate over time. The following graph is a visual representation of this relationship.
An investor’s age also influences the amount of risk they can withstand. Young people, with years of earnings and potential growth in the near future, can afford to take on more risk in their investment activities. However, individuals reaching retirement years may gravitate towards low-risk or risk-free investments, such as bonds or mutual funds. Therefore, young adults have the ability to build more aggressive portfolios that are subject to increased volatility and potentially larger gains.
According to US News, the power of investing is to turn seemingly insignificant amounts into massive sums of money. Take, for instance, a daily $5 latte from Starbucks or any coffee shop. If you were to skip the latte and rather invest that $5 a day into the stock market, your coffee fund could grow to approximately $11,000 in 5 years. Keep investing $5 a day for 50 years, and you could have more than $800,000 - just by making coffee at home. Through such examples, it is clear how applying the concept of investing from an early age can exponentially compound your funds within a matter of years.
Works Cited
Feight, Rich. "Investing at the Top of the Market." Thinking beyond Numbers, www.thinkingbeyondnumbers.com/investing-at-the-top-of-the-market/. Accessed 1 May 2022.
Folger, Jean. "5 Advantages of Investing in Your 20s." Investopedia, 10 Jan. 2021, www.investopedia.com/financial-edge/0212/5-advantages-to-investing-in-your-20s.aspx. Accessed 1 May 2022.
Hicks, Coryanne. "9 Charts Showing Why You Should Invest Today." US News, 23 July 2018, money.usnews.com/investing/investing-101/articles/2018-07-23/9-charts-showing-why-you-should-invest-today. Accessed 1 May 2022.