We all know that investing is the right thing to do. Yet we keep asking ourselves these two questions.
- Is now the right time for me to start? Should I wait until I’m richer or older?
- Is investing for me ? I never learned about it in school and it looks confusing. What’s the best strategy?
The short answer:
- Now is always the best time to start investing
- The best investment strategy is to start early and invest regularly
The long answer is:
The earlier you start investing, the higher the chances you will become rich one day.
I made my first investment at age eleven. I was wasting my life up until then.
– Warren Buffet
The longer the time you spend investing, the more you’ll end up with. At 11 years old, Warren made his first investment. He purchased six shares of Cities Service preferred stock at a cost of $38 per share. The company share price fell to $27, but shortly climbed back to $40. Warren sold his shares at $40. Almost immediately, the company’s share price shot up to more than $200 per share.
What did this teach him? If you want to invest in a company you have to be in it for the long term. If you are not willing to hold a stock for 10 years, don’t hold it for 10 minutes.
What does this teach you? You should not wait until you become rich to start investing but rather start investing to get rich one day. Also what is more important is reaching financial freedom. Which is the freedom to retire early, travel the world or build your next startup.
If you’re thinking “But, I don’t know how to do this. No one taught me this in school”. Don’t worry. It is not rocket science and will be helping you with that.
There are three simple steps you need to take before you start investing:
Step 1: Make sure your income covers all your essential expenses. Essential does not include the new pair of Jordans you’ve been eyeing.
Step 2: Pay off any debt you are paying high interest on
Step 3: Build an emergency fund (this is a backup for a rainy day that should typically cover about 4 months of your salary)
Now the most important thing to note here is that investing is something you do regularly and for the long-term.
Here is why regularly and long-term are the rule of thumb here.
Number 1: Investing a small amount every month the investor captures prices at all levels, from high to low. These periodic investments effectively lower the average cost per share.
Number 2: Now, if you want to make your money work for you—you can start reinvesting your gains. This way this surplus money re-invested will even further increase your earnings. This is what we call compounding.