Again and again the message comes through: long-term financial planning should start early. As in, really early. So while many people spend their twenties focussed more on the now than the long-term future, time ticks away and one’s lifetime investment horizon grows shorter. That’s important because holding some investments for just a few years more can make the difference between good returns and superb ones. But what if, at the age of 30, one still has not put a penny into investments? Is it still worth the effort to start investing?
The point of investing
People approach buying shares with different objectives. But for most of us, the idea is to build our personal wealth over the long term. That can be in the form of share price appreciation, dividend income, or a combination of both.
Like many things in life, the later one starts, the less time one has to do something. But just because the returns may be smaller, that does not mean that they are not still worth aiming for.
To take an example, imagine you invested £1,000 a year in a range of shares with an average yield of 5%, like SSE and DS Smith, then reinvested the dividends as you went along. At the age of 65, your investment pot should be worth around £121,000.
If you waited until you were 30 to begin, the total at 65 would be close to £74,000. You would still have invested for 78% as long, but the final value would only be 61% of what you could have managed by starting at 20.
That is partly because there would be an extra 10 years of contributions. But it also reflects the power of compounding. Compounding is one of the reasons a slightly longer timeframe can lead to dramatically better investment results.
Starting at 30
But while the returns beginning at 30 are far less than at 20, they are still very worthwhile, in my view! Indeed, in the example above if one did not start investing until 40, the total value of the investment at 65 would be £42,000.
So if I was 30 without a share in my name, I would still think it is worthwhile to invest. Indeed, I would begin putting aside money immediately. I would also consider setting up a share-dealing account or Stocks and Shares ISA to house my investments.
Start investing as you mean to go on
One mistake I would try to avoid, though, is making up for lost time in the wrong ways.
I could make up for lost time to some extent by paying in a higher amount of money. I think that could make sense. But some people try to make up for lost time by investing their hard-earned cash in unnecessarily risky shares, because they are greedy for returns.
That is understandable but I think it is also stupid. Higher risk shares may offer me the promise of higher returns too. But I could well end up doing far worse than if I stuck to less lucrative but lower risk shares. It is never too late to start investing. But I think it pays at any age to hunt for quality businesses with exceptional long-term prospects.