Being a yachtie you will know that it is easy to make money, harder not to spend it and even if you do save a portion of your salary it begins to become overwhelming as to how to make that money grow.
The first is step is becoming interested in investing which is just as hard as knowing where to start, where your risk lies and what to invest in?
The good news is that it is simple. By adopting a few straightforward tips, you can begin saving for the future…now! The trick is to make smart financial decisions, seek advice from the right people and start immediately.
Why invest?
Investing allows you to significantly grow your money over time thanks to the power of compound returns. Compound returns is interest which is accumulated on an investment and then added onto the original investment so that the accumulated interest can also earn interest. The result is much larger growth than could be achieved with the interest on the original investment alone.
For example: an investment with €10,000 earns 7% per year giving €10,700 at the end of year one. Then at the end of year two it would increase to €11,449. In year three to €12,250 and so on. If you withdrew the interest each year then after 3 years you would only have €12,100 (€10,000 + 3 years of €700 interest payments), so a difference of €150.43. Over three years the difference is relatively small, however, if you extrapolated this over 30 years, by leaving the interest money invested you would have €76,123 compared to only €31,000 which is the scenario if you withdrew the interest each year. This is a difference of €45,123 and this is without contributing anything more than the €10,000.
Investors need to understand the effects of compound interest as they have a big impact on fees and performance over longer periods. (Related article: Compounding returns and why it is "magic").
When should you invest?
Now. It is that simple.
Many people put off investing because they think you need a lot of money to start investing. This just isn’t true. You can start investing for as little as €50 per month.
The key to building wealth is developing good habits—like regularly putting money away every month and having this automated. If you make investing a habit now, you’ll be in a much stronger financial position down the road. (Related article: How to keep emotion out of investing).
Following on from the example of the compounding return's above, a similar example below to demonstrate the impact of missed gains from investing at different ages.
Take three different individuals with different scenarios:
1) Robert saved €1,000 per month from the time he turned 25 until he turned 35. Then he stopped depositing into the investment account but his money remained in the account.
2) Sarah didn’t start saving until age 35. She put away €1,000 per month from the age of 35 until 45.
3) Emma didn’t get around to investing until age 45. Still, she invested €1,000 per month for 10 years, stopping her savings at age 55. All of them, left their money in the investment account to continue to accrue interest at a rate of 7% until their 65th birthday.
Robert, Sarah and Emma each saved €120,000 over 10 years but due to the power of compounding returns and time to grow the ending balances were dramatically different.
As you can see in the table above, Emma started her investing journey 20 years later than Robert and this resulted in a difference of €1,071,562. This demonstrates that time is money and the later you start your investment journey the more it is going to cost you in the long run.
Many of us delay investing (or fail to start at all) because we are either intimidated by choosing investments or we are afraid of the risk. Over the next articles, we will go through the different steps in choosing the correct investment for you.
What are your investment options?
Asking why money is important to you helps you to define what you value, which in turn will help you develop a financial plan that fits your individual needs.
When you become an investor, you’ll be using your money to acquire things that offer the potential for profitable returns through one or more of the following:
Interest and dividends from savings or dividend-paying stocks and bonds;
Cash flow from businesses or real estate;
Appreciation of value from a stock portfolio;
Real estate;
Other assets.
The best investment accounts for a beginning investor should meet the following criteria:
Doesn’t overwhelm you
Doesn’t cost too much or penalise you for a small opening balance
Makes it easy to set up automatic investments to help you build wealth
Ideally looking for an investment account that it is transparent, uncomplicated, fairly priced, and mobile-ready.
As a starting point, take a short quiz to see what type of investor you are.
However, at the end of the day, it doesn’t matter as much where you invest but that you invest somewhere.
Information provided by goBuoyant is general in nature and does not take into consideration your personal financial situation. It is for educational purposes only and does not constitute formal financial advice. Remember, the value of any investment can go down as well as up.
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