Experienced investors constantly advise their younger counterparts to “invest while you’re young!”
But why? Why does investing while young matter more than investing while old? Can’t someone just “catch up” on their investments later in life?
Let’s look at three data-driven reasons why “invest while you’re young” makes so much sense.
Invest While You’re Young = Time to Compound
The younger you start investing, the more your investments will compound.
Here’s a great stat. Over the history of the U.S. stock market, the dollars that someone invests in their 20s have mattered more than the dollars they invest in their 30s, 40s, and 50s combined.
This is why your young years matter. And it’s also why “catching up” later can prove difficult.
This quick article—To Be Young! The Best Time To Invest—goes into more detail. Give it a read.
Perhaps you’ve heard this crazy math before.
- Abby invests $10K a year from age 22 to 30.
- Ben invests $10K a year from age 30 to 62.
- Who ends up with more money by age 62?
You can see where this is going…
For most periods of stock market history, Abby would end up with more money.
Yes, she only contributes $90K over 9 years, compared to Ben’s $330K over 33 years. But Abby’s money compounds for up to 40 years. Ben’s money compounds for up to 33 years.
That seven-year difference is huge when talking about compound returns. Starting young makes all the difference.
Invest While You’re Young: You May Never Get a Better Opportunity.
You should invest while you’re young because the stock market might never be lower again. Therefore, the time to buy is now.
Here’s a cool chart backing up my claim. The chart asks the questions:
“How old was someone during the BEST stock investing year of their life?”
And it asks that question for all people born from the 1870s until today.
Overwhelmingly, the answers skew young.
For ~50% of all people born in the past 150 years, the best year for them to invest was between ages 16 and 22.
For ~80% of people, the best year for them to invest occurred before age 40.
Only ~15% of people ever saw their best year occurring after age 50. And this 15% is entirely due to the Great Depression. People born in the late 1800s had their “best” investing year occur during the crash of the Great Depression.
If we only look at the stock market since the Great Depression…
We see that 100% of people have seen the best year of their investing career before they’re 40.
Waiting to invest later in life is like waiting to get in shape. The older you get, the more likely your body won’t cooperate with your plans. There’s no “rule” affecting the stock market the same way the endocrine system affects human health. But the idea is the same.
The stock market—on average—goes up! The lowest price is likely to occur early in your life. The longer you wait to invest, the more likely you’ll pay a higher price. Start earlier and increase your odds of success.
Invest While You’re Young – Life Won’t Get Cheaper
Your cost of living will never be cheaper than while you’re young.
(Though your salary may never be lower, either).
Here’s a great chart from the Bureau of Labor Statistics to show what I mean.
Expenses only increase with age. Kids arrive. Tastes grow more expensive. Your young years are when you can take advantage of a low cost of living (assuming, of course, you have the income to do so).
If your costs are low and you have spare income, invest it. Grab hold of compounding growth for the rest of your life..
That’s it. Three quick reasons why “invest while you’re young” is such common (and fantastic) advice.