Learn about the cost of waiting to invest. Investing can be scary, especially if you have no idea how the stock market works. This is why many people dismiss investing and delay these decisions until later. But by the time they finally plunge into investing, the cost of waiting to invest may be enormous.
How much money exactly do you miss out on if you delay investing? And is waiting to invest always a bad idea? This article aims to shed light on the cost of waiting and explains why you should start investing today.
Monethalia does not offer financial advice. Should you take any action based on the information provided, Monethalia will not be liable for the outcome.
Table of Contents
What is the cost of waiting to invest?
Why do people wait?
There are many reasons people wait with investing. Some of these are justified. For example, you may be unsure about your future plans. If you may want to go into further education in the near future, buy a house, have children, or other important life events, delaying investing is sensible.
When investing money, you should be sure that you do not need access to it for at least five to ten years. Otherwise, you may have to sell your stocks/funds when prices are low and end up with a loss.
Then, there are reasons that are, in fact, nothing more than excuses, or have no basis.
Waiting for the right stock price
One example is waiting for the right stock price. You may think that it is more profitable to buy during economic downturns when stock prices are low or when a company performs poorly. However, this is not the case.
Unless you are an expert, it will be next to impossible for you to find the sweet spot when stocks are at their lowest, just before they go up again. Plus, in reality, time in the market is more important than timing the market.
This means that average investors win by staying invested for a longer period of time rather than buying at the right moment. Thus, it is better to invest your money as soon as you have it, rather than wait. Smart investors achieve this by directly investing their leftover money every month, feeding it into well-diversified index funds.
Lack of knowledge or fear
People fear things that they do not understand. And for many people, the stock market is one of them. If these people would spare a second to read up on how to invest, they would understand that there is nothing to be fearful about. However, this is not as easy as it may sound, as people may think they lack access to easily understandable investment guides.
This is an outdated attitude as nowadays, there are many beginner-friendly books and blog posts. If you are reading this article, you are already on the way to beat the fear.
Is waiting always bad?
Waiting has a cost attached to it which may make it sound as if waiting is always a bad idea. But this is not generally true. There may some cases in which waiting to invest can be beneficial.
Using waiting time to plan
As a beginner, jumping right into the stock market is a bad idea. Taking your time, reading up on what to invest in, which platform to use, and how to manage your investment will almost always pay off. Buying stocks without understanding the company behind it, is nothing more than a gamble and you will likely lose money.
These losses will outweigh any costs you may have through waiting to invest. Therefore, taking it slow and steady as a beginner is crucial and not a waste of money or time.
How much does waiting to invest cost you?
The cost of waiting calculator
If you want to find out how much exactly the cost of waiting to invest are, then there is a calculator for you at Ativa interactive. Simply input:
- Your current savings
- Savings per year
- Years invested
- Years you have waited
- Rate of growth
The calculator will then show you how much money you have lost by not investing. In this case, I invested $1,000 with $1,000 savings per year and left it to grow for 20 years. Note: Ignore the dollar symbol, the results are the same regardless of currency.
With the set conditions, the cost of waiting to invest for ten years would have been $26,438:
Investing early in your life is advantageous due to compound interest. Compound interest means that you will gain interest on your interest. You may think of your invested money as a snowball, it continuously grows in size and the bigger it is, the more it grows.
Eventually, this growth will be quite substantial even if you do not make any more additional contributions. This is why the cost of waiting to invest can be enormous.
When should you invest?
Finding the right time to invest can be difficult. Ideally, you would start the day you are born so that the money has time to grow while you are a child and do not need to access it. However, parents rarely think about investing for their children as they often have more urgent needs.
The next best time is as soon as you have access to money that you do not immediately need. For example, if you have just turned 18, you may want to stay away from investing and use the money to save for a house deposit or to support yourself during university or extended stays abroad.
However, once your situation is stable and you have no future plans that require a large amount of money, the time to invest has come. Obviously, the condition for this is that all your debts are paid off.
What is the cost of waiting to invest? summary
On some occasions, waiting to invest is likely the better choice, for example, when you may need the money or when you are a complete beginner to investing. However, in almost all other cases, it is best to invest as early as possible. The cost of waiting to invest can be enormous.
Next, you may want to learn how you can invest as a beginner.
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