Chances are if you’re reading this you already take your financial independence and investing very seriously. If you don’t, let’s go over some reasons why you should.
It is the dream of many to be able to retire early, travel the world, not worry about what tomorrow might bring, not worry about money – period. For most, it remains just that – a dream. However, if you start early enough, by making smart and educated choices you can create your wealth even without any groundbreaking business ideas or inheriting generational riches from … a Nigerian prince. Once again, those who have started early enough are already well on their way and surely will snigger at this blog entry.
Good for them
But how about those of us who have already celebrated our 35th, 40th, even 50th birthday – is it too late for us? Is it too late for you if you’re already in your sixties? Great news is – it’s never too late to start investing money.
Here’s the kicker. The later you start, the higher the percentage of your monthly disposable income you’ll have to invest to reach the same financial freedom as someone, say, 10 years younger. Once you reach that point where you feel like you want to start investing some money and set up a passive income, thereupon starts the hard part – you have to learn and decide between various investment options that best fit your need of earning a lot of dough very quickly.
Then again, it’s not what you had in mind, right? All you wanted was to set up a PASSIVE income source. Not spend days and nights labouring over quarterly reviews and socio-geographic maps to determine which stock or which housing development to invest in to make enough money for a timeshare in the Canaries.
But, is there enough time?
Indeed, if you’ve decided you want to retire in 15 years and you’ve only now started to do something about your finances, the options might seem quite limited.
Sure, you could invest 15% of your monthly income in buying lottery tickets. Or you could spend 30% of it at the racetrack, betting on Lame Strider at the races. Or you could put 10% of your monthly disposable’ up for some shady crypto. In the end, it’s all just gambling. Sure, some of us win. Maybe even enough to never work again. But if we’re being reasonable – it’s clear that you need to approach investing your money very deliberately. Especially if you have put time constraints for yielding results upon yourself.
In short – there isn’t a quick way to get rich from investing. So time really is of essence.
When you’re in your 20s it’s very reasonable to assume you still have a lot of time to invest and yield profit. But once you’re in your 30s or later, you start to have this invisible creeping feeling of impending doom. The end draws nigh, you’re out of time, oh – what to do! So, naturally, for all intents and purposes you will gravitate towards higher yield investments.
Where should you put your money?
Well, there are heaps of options out there. Generally, when one thinks of investing, the stock market comes to mind first. Cryptocurrencies are all the rage nowadays.
If neither of those feel like a fit for you – you can always look into the housing development. It’s been more than a decade since the infamous financial crisis of 2008 and housing/real estate prices are well on the rise once again. This rapid growth is desired by many investors.
Crowdfunding/P2P lending is another popular investment option. These options compare well to each other. Each has its advantages over the others, so it’s up to you to choose.
You can argue that the stock market or cryptocurrency trade can give you a larger profit over the same time frame. However – once you look into all the details, it quickly becomes clear that neither stocks nor cryptocurrencies are all that stable and dependable. Yes, the stock market has an average return of approximately 10% over the last century. And, yes, investing in cryptocurrencies can give you a 10 000% return over a decade, apparently.
But in the case of the former, you can’t realistically predict all the fluctuations over a shorter period of time. It’s like expecting Serena Williams to win the US Open year after year. But then, you know, she withdraws due to injury and a teenager from London steals the show.
And in the case of the latter, you need to invest early and heavily. That’s much easier to say than to do, since there are more than 10 000 various cryptocurrencies on the market now.
Nowadays these options can actually be so volatile that you could be up 25% between breakfast and brunch and down 40% before supper – all in the same day. Besides, as previously mentioned, investing in stocks and cryptocurrencies requires tons of research to begin with and continuous vigilance thereafter. Do you want to go through all that and then still lose half your investment due to someone’s afternoon tweet? Yeah, neither would I.
So, what can you do?
You can start by taking a look at what a theoretical portfolio might look like if you started investing at 25 or later – at 35. That should give you the general idea why investing earlier is the path you should seriously consider.
For the purpose of comparison, I’ve used real interest rates from the Swaper platform. At Swaper, we offer an interest rate as high as 14% from the get go. And you can start investing from as little as €10. And once your portfolio reaches a certain amount, your interest rate can go up to 16%. With the initial rate of 14%, you will double your investment in only slightly over 5 years. But with a 16% rate your investment doubles in only 4.5 years time!
Sounds good, right?
Now imagine you didn’t stop investing after the initial amount. The growth of your wealth would be exponential. We’ve already looked at compound interest before. It’s also of note that once you’ve reached a significant portfolio size, your yearly interest will start covering most or even all of your expenses. Thus, you will be able to withdraw the yearly interest and continue earning the same interest year after year. Now, let’s see why it’s important you don’t delay any more. Here’s what compound interest looks like for a 25-year-old and a 35-year-old at basic 14% rate, side-by-side:
|Year||Total Deposits||Total Interest||Balance
(starting when you are 25)
(starting when you are 35)
As you can see, if you started investing at 35 instead of 25, your total earnings would be roughly ¼ of what it would be if you started at 25. Let’s take a look at how much you’d have to invest per month to earn as much interest as the 25-year-old investor at basic 14% rate:
|Year||Total Deposits||Total Interest||Balance||Total Deposits||Total Interest||Balance|
As seen above, it would take almost 5 times the monthly investment to earn back the same amount of interest as if you’d started at 25. While investing €500 per month from age 35 to 55 is still very manageable, why put yourself at a disadvantage?
It’s apparent that investing at an earlier age is putting yourself at an advantage. Meaning – you will reach financial independence much earlier in life. Especially if you continue adding to your investment portfolio regularly. However, do not despair! Starting later will benefit you, too. You can still make a lot of interest on your investment with any viable solution you choose. Especially once you’ve made up your mind and made your first investment.
It’s all very simple – why wait? Do not hesitate! Start investing now and earn yourself an early retirement!
This is an informative blog entry and should not be taken as financial advice.