3 Reasons Why It's Important to Invest Early

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  • When you're younger, you can afford to take on more risk in your portfolio.
  • You can also benefit from compounded returns and establish good habits that serve you well for years.

The sooner you're able to start, the better.

Whether you're investing your money in a brokerage account, an IRA, or both, your goal is no doubt to make as much money as possible given your goals and risk tolerance. And often, that boils down to starting to invest from a young age.

It can be hard to motivate yourself to go that route, though. After all, when you're in your 20s, the idea of opening and funding an IRA account can seem daunting or just plain undesirable given how far away retirement is.

But actually, the earlier you start to invest your money, the more you stand to benefit. Here are just a few reasons to invest from a young age rather than wait.

1. You can take on more risk in your portfolio

Investing in assets like stocks can be risky. But if you give yourself a long investment window, you should be more comfortable taking on that risk. And to be clear, you need some risk in your portfolio if you want to reap rewards.

Investors who invest too conservatively might limit their risk, but they also commonly limit their returns in the process. And to be clear, that puts them at risk of not having enough income once retirement rolls around.

2. You can enjoy added growth without having to do anything

The longer you put your money to work, the more you can benefit from compounded returns in your brokerage account or IRA. Compounded returns refers to being able to earn a return on your principal contributions as well as the returns they generate.

As an example, let's say you invest $1,000 at the start of the year and it grows to $1,100 by the end of the year. That second year, you'll get to invest $1,100, not just your initial $1,000.

To show what an impact investing from a young age might have, let's say you invest $100 a month over a 40-year period at an average annual 8% return, which is a bit below the stock market's average, as measured by the S&P 500 index. Though you'll only be putting in $48,000 in principal contributions, you'll end up with about $311,000 when you account for compounded returns.

If you're still not convinced, check out this tweet by financial guru Ramit Sethi, who says "At a certain point, your investments make more than you can spend. Start early."

3. You can develop good habits that help you for life

It takes a degree of sacrifice to be carving out money for your brokerage account and/or IRA at a young age. But learning to prioritize your savings and investments is a good habit in general -- one that might prevent you from overspending and landing in debt.

After all, if you're steadily funding an investment account, you're not spending all of your paycheck. And that alone has a lot of value.

Some people wait to invest their money and regret it later on. But there are many good reasons to invest from a young age, so if you manage to get into that habit, it might lead to a world of financial security and success.

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