People always ask, “when is the best time to invest?” The answer is simple: now. I want to clarify, the date this article is posted does not change the answer to the question. The sooner you invest, the better off you are. Even if you don’t have much to invest, you should still invest at least some money. So, why do I say now is always the best time to invest?
Compound Growth
You may be more familiar with the term compound interest than compound growth. Compound interest is when your interest grows larger and larger as it builds on itself. Now think of this concept with investments. Rather than interest, your returns are compounding; in other words, the money you invested is growing. Let’s look at a simplified example below.
Initial investment: $100
Annual Return on Investment: 5%
Year 1: $100 x 1.05% = $105
Year 2: $105 x 1.05% = $110.25
Year 3: $110.25 x 1.05% = $115.76
Year 4: $115.76 x 1.05% = $121.55
Year 5: $121.55 x 1.05% = $127.63
By simply investing $100 and leaving it, your money grows 27.63% after 5 years if the return is consistently 5%. If you waited until year 5 to invest, you would only have 5% growth. So, let’s address some of the reasons you may be hesitating.
The Current Market Doesn’t Matter
Whatever the state of the stock market currently is does not matter when you are investing for the long term. Amazon’s stock price at 12/31/2014 was $354.53. Five years later, on 12/31/2019, Amazon’s price per share was $1,847.84. In those 5 years, the stock price went up and down several times; however, if you rode out the lows of the stock between those 5 years, you’d be happy with where you ended up.
Five years isn’t quite long term either, so think about how large that growth would be over an even longer period of time. This article gives a more thorough breakdown, but if you invested $100 in Amazon’s IPO in 1997, that investment would be worth $129,186 as of 2/2/2020.
The point here is, whether the market is up or down, you should start investing now. Waiting it out a few days for a dip in the market if you have a certain stock in mind can potentially save you a couple dollars, but in the long run that won’t make much of a difference to you. You can always buy a partial position in the stock you want and build if/when it goes down after that, as well.
Your Debt Doesn’t Matter
While I know it may be the case that the interest rate on your date is higher than the rate of return you may receive on your investment, I still recommend investing at least some money now. If you have a monstrous amount of debt, I do believe that paying that off should be your priority; however, even if you can scrounge up $100, I think it should be invested because if not, you may miss out on the compound growth mentioned above, which could be significantly more impactful than the current interest owed. Let’s say it takes you 20 years to pay off your debt; that’s 20 years of compounding growth that you are missing out on by not investing anything.
Your Lack of Funds Doesn’t Matter
Now this is a tougher one because if you literally have no money, you obviously cannot invest. I do not support going into debt in order to invest because that can lead to a downward debt spiral. But, with companies like Acorns, it’s hard to use lack of money as an excuse.
Acorns offers a feature called “Round-Ups” in which you link a bank account, debit card or credit card to your account and each purchase you make is then rounded up, with that spare change being invested. You are unlikely to notice the difference from an expense standpoint, but over time you will be happy with the results from an investment standpoint. This is just another way compound growth can have a big impact even on small dollars.
Your Future Matters
You will never look back and regret investing to build your money. There are so many options for investing that it is almost a guarantee you can make money. Between stocks, mutual funds, ETFs, bonds, CDs, options and more, the investment choices are nearly endless. Also, if you do not feel comfortable making investment choices for yourself, there are financial and robo advisors available at little to no cost. The best time to invest is now, so what are you waiting for?
