Data indicates that investing earlier produces better results over time, and most investors wish they had started sooner
Don't wait if you're considering starting an investment. According to new research, your returns will increase with the timing of your investments.
Novice investors may be curious about the ideal time to begin investing. In a nutshell, the sooner, the better.
A common saying in the stock market is that it's better to spend time in the market than to time it. This proverb alludes to compound interest in elementary mathematics. The longer you allow your investments to grow, the bigger they will get.
According to an Alliance Witan study of 1,000 UK adults with assets of at least £10,000, three out of five investors (59 percent) wish they had begun investing sooner. 72% of investors believe that more work is required to increase public comfort with investing, and half of investors stated that it took them a long time to become comfortable with the idea.
"With experience comes confidence, and ultimately comfort," says Mark Atkinson, senior director at Alliance Witan's management company, WTW. "The need to alter the mindset surrounding investing in the UK is being discussed a lot, and with good reason.
The study shows that when it comes to their money, British people can be very risk averse. According to 22% of those surveyed, they intended to increase their cash savings.
Ironically, younger investors are more likely to express a wish that they had begun investing earlier: when asked, three-quarters of investors between the ages of 18 and 35 said they wished they had begun earlier, compared to two-thirds of investors between the ages of 35 and 54 and 45% of investors who are 55 or older.
Do you get more money if you invest early?
Compound interest is the foundation of the investing concept. In practice, this entails allowing your investments to yield returns, reinvesting them, and eventually realizing ever-higher returns.
Even if you invest the same total amount, your returns will be higher the earlier you start.
Trading platform IG conducted research for BFIA on the differences between starting investments at age 20 and starting at age 40.
After investing 10,000 in the FTSE 100 annually since they were 40, a 60-year-old would now have a portfolio worth 388,253.09, out of a total investment of 200,000.
The same person's portfolio would now be worth more than twice as much, at 878,159.58, if they had invested the same amount over a 40-year period, beginning at age 20 and making 5,000 annually.
A portfolio worth 572,749.99 would have been produced by starting at 40 with 10,000 annual investments if these investments had been placed in the SandP 500, which has outperformed the FTSE 100 over the same time period. However, a portfolio worth 2,212,962.78 would have been produced by starting at 20 with 5,000 annual investments.
Is it time to begin investing?
Atkinson emphasizes that "those considering starting investing should fully understand the risks, and ensure investment decisions are proportionate to their immediate financial commitments and long-term goals" because investing in the long run carries some risks.
He does, however, think that the government is making progress in enhancing financial literacy and providing individuals with the assurance they require to begin investing.
"Better education earlier will help people gain confidence and understanding, enabling UK households to benefit from long-term investing," he stated.
For information on where to begin, those who are thinking about investing can read the BFIA's explainers on the best investment trusts for novice investors or investment funds for novice investors.
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