We often encourage investors to start investing as early as possible. But why?
In investing, time is everything ⏰
Time allows you to ride the temporary ups and downs in the market. Time also lets your returns grow faster through compounding returns. The longer you invest, the likelier you are to maximise your potential returns.
So let’s look into one of the basic principles in investing: compound returns
Compound returns is the return an investor earned on his original investment, plus all the returns earned on the returns that have accumulated over time. Think of it as earning a return on your previous returns.
When you invest long-term, your returns are continuously reinvested. This leads to a snowball effect of your returns increasing overtime.
The trick is to not touch your investments!
When the market dips, it gives investors the opportunity to buy more assets at a lower price. Similarly, when markets trend upwards investors are buying assets at a higher price. History has shown that the stock market trends upwards after a dip. Usually investors stay in the markets for at least 5-10 years and it gives them time to ride the ups and downs.
This may sound simple but a bear market is a mental hurdle for investors – newbie and veterans alike. With constant speculation and investments making steady losses, investors are more inclined to make emotional decisions and pull out from their investments. This leads them to lose out on making long-term gains as well as benefit from compounding returns.
If you’re a cautious and/or nervous investor, it may be worth exploring dollar-cost averaging.
Wealth building may feel like a slow process, but remember the key to achieving financial wellness is to save and invest consistently. As the saying goes, sikit-sikit lama-lama jadi bukit. #YouCanDuit