If you're in your twenties and haven't started investing, it might be time to tackle your next "adulting" milestone.
Rent is expensive, student debt isn't paid off yet and you have trips you want to knock off your bucket list, so you may think you’re too young — or broke — to invest. After all, retirement is way off in the future, so why worry about it now?
But the secret is that investing in your twenties — even in small amounts (article: How to Start Investing: Make a Mountain Out of a Molehill ) — is one of the best financial life hacks around.
Here's a rundown of benefits of investing early, how to do it and things to watch out for:
Why Start Investing Early?
Compound interest. Compound interest is what happens when any amount of money you invest earns interest — and then that interest starts earning more interest. The longer you have money invested, the longer it has time to compound and grow (article: If There’s One Thing to Know About Investing, It’s This ) .
There's a story that's been told to generations of twenty-somethings: There are two sisters — one who saves in her twenties and the other who starts saving in her thirties. By the time she turns 30, the first sister has put away $100,000 towards retirement. The second sister starts at age 30, and saves $10,000 a year until she retires at 65. Which sister has more money when she retires? Assuming they both get the same return on their investments, the one who saved in her twenties will have more when she's 65.
The reason she has more is because compound interest helps her out. Every little bit you invest in your twenties helps boost your future retirement savings.
How to Start Investing Early
Luckily, you don't need a master's degree in economics in order to understand your investments — if you're just starting to invest, you might consider a robo-advisor (article: What is a Robo-Advisor? ) .
Robo-advisors use algorithms to invest your money according to things like your age and risk tolerance. They also automatically diversify and rebalance your investments to keep you on the right track. Robo-advisors let you invest smaller amounts, and you can set up your portfolio quickly and easily online.
The best thing about robo advisors? They charge very low fees (article: Here’s Our Catch on Fees ) and that means you get to keep more of your earnings!
Things to Watch Out For
When it comes to investing your money, it's important to do it in a way that is comfortable for you. Investing doesn't always have to be long-term — you can choose more flexible types of accounts like a TFSA (article: What's a TFSA? ) or a Non-registered account, which may be better suited to your short-term goals. For long-term goals, you might choose an RRSP (article: What's an RRSP?) ; however, you won't have quick access to this money for a while as it's intended for use when you retire. You can access the funds in an RRSP before you retire, but you may have to pay a penalty for taking the money out early.
Is It Too Late?
If you don't have a penny saved yet and you're in your late twenties or early thirties — don't panic. It's not too late to start investing. Just start small, invest regularly (article: Why Investing Isn’t Only for the Rich ) and remember that with compound interest, time is on your side.