The benefits of getting started with investing

July 3, 2023July 3, 2023 ryan.renkey

If you want to grow your wealth, you need to start investing as soon as possible. Investing can seem intimidating, but it doesn’t have to be complicated or risky. You can start with a simple and low-cost strategy that will help you achieve your financial goals over time. Here are some of the benefits of just getting started with investing.

Compound investing rewards early and consistent investors

You can take advantage of compound interest. Compound interest is when your money earns interest on both the principal and the interest that you’ve already earned. This means that your money grows faster and faster over time, as long as you reinvest your earnings. The earlier you start investing, the more time you have for compound interest to work its magic. For example, if you invest $100 each month at a 7% return, you will have $17,509 after 10 years, $52,496 after 20 years, and $122,808 after 30 years. But if you wait 10 years to start investing and try to double your contributions to $200 each month to catch up, you will only have $34,817 after 20 years, and $104,589 after 30 years. Even though you saved an extra $12,000 from your paycheck over those 30 years, you still ended up with far less than if you had given half as much effort a decade earlier!

You don’t have to regret not investing sooner. What matters is what you do from now on. As the saying goes, the best time to plant a tree was twenty years ago, the next best time is now. Instead of focusing on the past, you should concentrate on taking action today to secure your financial future.

Learn by doing and improve your investing skills over time

You can learn by doing. Investing is not something that you can master overnight. It takes time and practice to develop your skills and knowledge. By starting early, you can learn from your own experience and mistakes, and improve your strategy over time. You can also learn from other investors, by reading books, blogs, podcasts, or online forums. The more you learn, the more confident and successful you will become as an investor.

One challenge that I faced when I started to invest was determining my risk appetite. I was initially very cautious to risk my money because I was afraid that I might make impulsive decisions and sell my investments during a market crash. However, when the market did plummet in 2020, I actually felt confident investing even more as I saw the chance to invest at much lower prices. This just proves that you may be surprised by your response to market fluctuations but won’t find out for sure unless you take the plunge and start investing.

A simple portfolio can be an effective one

You can keep it simple. You don’t need to have a lot of money or a complex portfolio to start investing. In fact, you can start with as little as one or two mutual funds or exchange-traded funds (ETFs) that track the performance of the entire stock market or a specific sector. For example, the Vanguard Total Stock Market Index Fund (VTI) is a popular fund that invests in thousands of U.S. companies across all industries and sizes. By investing in a broad-based fund like this, you can diversify your risk and capture the growth of the whole market. You can also automate your investing by setting up a regular contribution from your bank account or paycheck to your investment account. This way, you can invest without having to worry about timing the market or making decisions every month.

My investing journey started with two basic mutual funds, but as I gained more confidence, I started to explore more sophisticated strategies. However, I soon realized that adding more complexity did not improve my returns compared to a simple broad market index fund. In fact, I was lucky to not lag behind the market. Most investors will not be able to beat the market over time, so it is often better to keep your investing strategy simple. If you do want to make a bet on the market direction, choose one or two theses and track their performance over the next few years. Whether you are right or wrong, you’ll likely have a much greater appreciation for the market.

Starting to invest is one of the best decisions you can make for your financial future. Don’t let fear or confusion stop you from taking action. Start now and enjoy the benefits of compounding interest, learning by doing, and keeping it simple.

Readers, what’s held you back from getting started investing?

What are some of the factors that hold you back from getting started investing today? Or what were some reasons that you delayed opening your first brokerage account?