Misconceptions of Investing
Still, in the UK, many people use ‘not having enough money’ as an excuse to not start investing. This is extremely counterproductive as investing is one route to create wealth not just grow wealth once it is achieved.
To this end we’re going to look into the benefits of starting small.
Time in the market
Platforms today allow you to start investing for as little as £1. Now, I’m not claiming this will make you an overnight millionaire but it does get the ball rolling in terms of compound growth (see my post on the compound effect).
Time in the market is key for compounding to gain traction. With a consistent small input into investments and a long term strategy, the best time to invest is right now!
Recommended Reading: Understand the power of Compounding, it could just change your life.
Building up the investing habit
When you’re younger you’re likely to be on a much smaller wage compared to your peak career. This makes small amounts the only option.
By consistently putting smaller amounts away, you’re developing great financial habits. You’re budgeting, saving and then investing those savings. All are great things to be doing early as it will help you manage your money for life.
Hopefully as your salary increases you’ll have caught the investing bug and those monthly deposits will increase as well. With time that £10 a month will become £100 a month, maybe even £100 a week. As you’ll have built up these key money management skills early, investing will become second nature and the growth will hopefully follow.
Recommended Reading: Learn how to create the perfect budget for you with Budgeting For Beginners.
Getting used to volatility
Investing has an emotional side due to the natural rises and crashes in the stock market. Investing just before a big crash can really shatter the confidence of any investor never mind a complete beginner.
By starting small you can dip your toes into the investing space. You can see the daily raises and falls and acclimatise to the instability.
If there is a crash and you see your investments drop by 40% you’ll be far less likely to sell or let it worry you as much if its only £100 as apposed to £100,000.
By conditioning yourself to this volatility it’ll be far less likely to effect you when your pot does become substantial. You’ll have a higher probability of not selling at the wrong time in a down period thus giving you the best chances of increasing your wealth.
Recommended Reading: Just starting your career? Check out my early career retirement planning guide.
The Results
As a final thought I just that I’d show what could happen over a working lifetime of 35 years even if you put aside small deposits of £25 a month.
Now these are not inflation adjusted however it goes to show how starting early and even with small amounts can really harness the compounding effect and produce a tidy sum from your consistent effort.
Estimated pot size for different rates of monthly deposit.
Monthly Deposit |
Total after 15 years at 7% |
Total after 35 years at 7% |
|---|---|---|
£25
|
£7,995
|
£45,314
|
£50
|
£15,990
|
£90,628
|
£75
|
£23,985
|
£135,942
|
£100
|
£31,981
|
£181,256
|
£200
|
£63,962
|
£362,512
|
If you want to do your own predictions this is the compound interest calculator I use.
Over to you
I hope you’re able to use this as motivation to continue or even start your investing journey. It should also show you how building up your deposits over time can result in large payoffs in the end.
As the saying goes it’s all about ‘time in the market, not timing the market’. Happy investing!
Disclaimer
All information is not financial advice and is purely meant for educational purposes only. Investing involves the risk of loss of capital as well as its gain. Any investments mentioned on this website are meant as examples not specific recommendations. Always do your own research and/or gain the help of a financial advisor.
