Many of us may have heard people talking about investing. Some of them warn us to stay away from it because they feel that it’s equivalent to gambling. While news of others making money in the stock market are aplenty. So what exactly is investing?
To put it simply, it is buying an ownership of the company you are investing into. (Of course this is not inclusive of ETFs, mutual funds etc) You put in a portion of your money into the company and hope that the company can deliver on their results which is reflected in an increase in share price. And of course when you sell the shares of the company, the net gain between your buy price and the market price of the share becomes your profit.
Let’s move into the main topic. So why should young people learn to invest?
- More time– As we all know the beauty of being young is that we have more time. Having more time means that we have a good runway to learn and make mistakes. You wouldn’t want to be losing your hard earned money in investing when you just started out at 30.
- The magic of compounding — Like what Albert Einstein said, “Compound Interest is the eighth wonder of the world.” Comparing two individuals, A who starts investing at 25 and B who starts at 35. Given that the amount each individual put in are the same but A only contributes for 10 years whereas B contributes for 25 years. (Compounded at 8 percent annually) A would still have more money at retirement than B due to compounding interest. Magic isn’t it?
- Making your money work for you — Interest rates that banks offer are no longer sufficient to keep up with inflation rate. The value of all your hard earned money will decrease if you allow it to sit idle in your bank account till retirement. However if done correctly, investing can grow your savings at a faster pace than inflation. This will enhance your retirement nest egg and protect the value of your savings.
In conclusion, the power of investing is one that is here to stay. However with great power comes great responsibility. And that responsibility entails doing your research and seizing the right opportunities. Being young therefore gives us ample time to master this power. And that will only happen if you are willing to take the first step.