When is the best time to start investing?
Actually, 20 years ago was the best time to start investing, which is an adaptation of a Chinese proverb: The best time to plant a tree was 20 years ago. The second-best time is now.
Sadly, the laws of physics prohibit the backdating of both investing and arboreal activities, which leaves us with the second best and only real option – now.
It is a little appreciated fact that time has real value when it comes to investing. Most people think that profiting from the movement in prices is what investing is all about and that certainly plays a part, particularly in the short-term. However, over the long-term, the real key to investing is time and the compounding of returns from investments, irrespective of what asset prices have done in the short-term. Because of this, time is also an enabler of higher investment returns as it allows investors to invest in higher growth assets and put aside the distracting ebb and flow of market prices.
The chart above illustrates how significant compounded investment returns can be. It also illustrates just how important time is when investing and why now is the best time to start. The impact of compounding does not become significant for the first decade or so but accelerates thereafter.
You may be investing for yourself, your children, their children or another beneficiary, but the longer your time horizon is the greater the benefit from the investor’s greatest ally will be. You will also be able to look back in 20 years and say the best time to invest was 20 years ago. Time marches inexorably onward. Those who don’t invest now take one of the biggest and least considered investment risks, the risk of regret.
In conclusion, for a long-term investor, now is the best time to start investing.
The best time to plant a tree was 20 years ago. The second-best time is now.
Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular investor’s objectives, financial situation or needs. Any opinions contained in it are held as at the report date and are subject to change without notice. This document is solely for the use of the party to whom it is provided.
March saw the Coronavirus have a more tangible effect at home, with the move to lockdown in New Zealand taking it from a global event to something with a very clear impact on our day-to-day lives. Meanwhile, share markets around the world continued to be volatile, with the US S&P 500 index staging a dramatic partial 18% recovery in three days towards the end of the month.