When it comes to investing, time is your friend

With so many of our endeavors, it’s human nature to wait to begin — when starting something new, most of us want to wait until we have more money, more information, more guidance, more time. And when it comes to investing, that instinct to hold off is understandable; you certainly want to exercise a degree of caution where your money is concerned. However, there are some instances (like investing!) where failure to launch could cost you — literally.

Generally speaking, there are three main things to consider when investing: your investment objective, risk tolerance, and time frame. Of these, time is going to be the biggie. Early investments lead to compounding returns, and time is a great way to mitigate risk, especially on more volatile investments. Investment values are often affected by the market as well as the general economy. That means there are good and bad years — and even extremes in those two categories. But the market continues to show great gains for long-term investors, and with time on your side, the chances of you making a big gain in your investment are much better.

Don’t get us wrong: It’s never too late to start investing, and there are certainly portfolios geared toward investors with a shorter stint (or even sprint) to their target date. But if you have the time, what’s keeping you from starting? Regular investments made early (and wisely) can potentially pay off big at the time of retirement — or a major purchase.

We’re going to guess the deterrent is money. It’s a common misconception that getting started in investing takes a sizeable chunk of change. That’s just not so — remember, the chunk of change is the objective, not the starting point. Can you rework your budget to find even $10 a month? That might be one less glass of wine, case of soda, couple of lattes, wheel of fancy cheese, movie ticket… you get the picture. You might be thinking that 10 bucks a month won’t add up to much, so why bother, right?

Well, if you have those lattes every month for five years, what do you really have at the end of that time — aside from the jitters? Invest that same $10 every month, and at a 7% rate of return, at the end of five years, you would have approximately $715. Keep adding $10 a month, and in 10 years with the same rate of return, you’re up to approximately $1,700. In 15 years, that same monthly contribution could have grown to approximately $3,100, and in 20 years, $5,200. These calculations are, of course, approximate, and the rate of return is a projection, but this should give you an idea of what just a small amount of money can do. (We used the calculator at Saving.org — use it and get inspired!)

In summary, there is real power in long-term investing, and getting started early helps you better weather those market fluctuations. Trimming your budget to uncover even a small amount to invest monthly can pay off in spades.