Am I too old to start investing? It is a question that people of all ages ask. I myself was involved in this a few years ago. I was 37 at the time.
I was researching how to build the best wealth as a freelancer, and during that research I read about US top investor Warren Buffett (92). By now, I’m of the opinion that it’s pointless to say the least and totally demotivating at worst to read about top investors when you’re just about to put in your first $100.
Buffett currently has assets that fluctuate around $100 billion. More than 99 percent of this is return that he earned after his 55th birthday. He started investing when he was 14, with $5,000. His big secret is not a superhuman insight into the stock market and stock prices. It is simply: long life.
In principle, investing yields the most return if you do it for a long time. This is due to the interest-on-interest effect: the phenomenon that every return that you reinvest itself generates a return. This exponential growth is slow at first, but pays off staggeringly over several decades. Example: periodically investing 100 euros every month in an index fund with an average market return of 7 percent in the past, gives you a final capital of 31 thousand euros after fifteen years, more than a hundred thousand after thirty years and more than a million after sixty years.
When I read that, I thought: why start now? Now I know there are plenty of good reasons for that.
First, Buffett is a bad example. Who needs 100 billion? That is an obscene and unrealistic amount. When I started to think seriously about my goals, it turned out that I also have a comfortable future with a ton. I decided to become a ‘tonnaire’.
The bottom line is that for the first time in a long time, I started to think seriously about my money. And that is actually more important than any return. Because I started investing and all the risks involved, I couldn’t afford to blindly deposit some money. I needed a sound money plan.
That money plan consisted not only of investing, but also of saving for a money buffer, mortgage payments and a healthy spending pattern. The latter in particular works well in the short term. Investing may yield profit in the future, saving yields immediate profit.
Finally, there is another reason not to be underestimated for wanting to become a tonnaire at age (37, 55 or 81) as well. As a (grand) parent you have an exemplary function. There is no better way to teach your (grand)children how to handle money than to show it yourself. If you want your children to start saving for later, you should of course do it yourself.