Deciding when to invest is no easy task. Typically, people start investing in their 30s, but is this the ideal age to take the plunge?
Invest as soon as you can
The best time to put your money in the stock market is right now, assuming you’re financially ready. The earlier you give investing a go, the sooner your money could start compounding. What does it mean, you ask? Some companies pay dividends to their shareholders - this is a sum of money paid out of the company profits. By paying dividends directly back into your Plan each year, on top of your original investment, your money could quickly add up, as you’ll be able to use the dividends to purchase more investments.
In other words, if you reinvest dividends and profits from your investments back into your Plan, your money could quickly add up, and like a snowball rolling down a hill, it could grow exponentially bigger along the way. Investing as soon as possible could help you make the most of the compounding process, but what could happen if you wait?
Let’s say you hold off until your 35th birthday to start investing. You decide to put £100 per month in a Stocks and Shares ISA and patiently wait for the money to grow. At the age of 65, you could get around £64,4421. Now imagine you had taken the plunge 10 years earlier, when you were 25. You could have ended up with £115,6762.
Joining the investment world early is important but, to make the most of your adventure, it’s important to commit long-term too!
By sticking with your investments for a number of years, your money will typically have more time to flourish and compound. If you move your money every time markets are down, you’d be making your losses real and you’d risk missing potential profits when the markets rebound.
But, lets flip this and make the best out of a ‘bad’ situation*.
If the markets drop, this could be the perfect opportunity to pick up a cheap investment which could generate a healthy return when the markets bounce back. This is why being patient is key! It’s a great discipline which can help you to ride out the bumps in the market over the short-term.
When stock prices drop, it isn’t always a bad thing – because of what we just said! You could get yourself a bargain! It depends if you sell and make your losses real – It’s also very personal to each individual as someone may not mind ‘losing’ £100 but to others that would be a kick in the teeth!
But more importantly, you don’t technically lose any money until you sell your investment when its price is lower than the price you bought it for. So again, if you can hold your nerve and you don’t need the money urgently for anything, keeping it invested could help you to grow your money over the long term!
Invest in your child’s future
Since investing early lets you take advantage of the power of compounding, it could be a good idea to invest for your child. If you want to build up wealth for your little one and help them settle into their adult life, you could consider paying into a Junior Stocks and Shares ISA.
What is a Junior Stocks and Shares ISA?
A Junior Stocks and Shares ISA lets you invest up to £9,000 a year (subject to change) - the Junior ISA limit for 2019/2020 was set at £4,368, but it increased in 2020/21, giving you the opportunity to save a bit more if you want to and can afford it. The good thing about it is that your child doesn’t need to pay UK tax on any gains they make, that way, they get to keep more of their returns.
Why invest in a Junior ISA?
Investing in a Junior ISA comes with many benefits. With a Junior Stocks and Shares ISA, your child’s money is locked away until their 18th birthday, meaning nobody can dip into their savings. Also, being safely tucked away, your child’s money should also have plenty of time to potentially grow and compound. Once they turn 18, your child gets full control over their money and can decide what they want to do with it. Whether they choose to keep it invested, use it to fund their further education, or buy their first car – the choice is theirs, and you can be happy knowing that you were able to help.
1: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £44,851. If markets perform better, your return could be £98,174. Values correct as of 21/08/19.
2: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £71,080. If markets perform better, your return could be £201,025. Values correct as of 21/08/19.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.