Message from your future self: invest sooner and invest more

Wherever you look, there’s no shortage of advice on how to invest your money. There are far more options open to investors today than there have ever been. But don’t let the welter of choice out there distract you from the most important point of all, namely that most young people need to invest more for their retirement, and if you haven’t even started yet, you need to do so now.

You can make the smartest choices about where to invest your money, and which funds to choose, but if you’re not putting enough money away, you still won’t achieve your investment goals.

If you’re not doing so already, the single most important thing you can do to secure your financial well-being is to start investing. And if you’re only investing a modest amount each month, invest more. Why? Because investment returns compound over time. In other words, the gains you make generate gains of their own; those in turn generate more gains and so on. The longer you invest for, the bigger the effect that compounding has.

Just look at the figures. On average, investments return about 8% a year. That means, even allowing for inflation, that one pound invested today will probably be worth ten pounds in 30 years’ time. Or, to put it another way, for every pound you don’t invest in your 20s you’ll need to invest ten of them in your 50s.

“Ah”, you might say, “I’ll be wealthier in 30 years’ time. I’ll be able to afford it”. But who knows what financial commitments you might have by then? The chances are you will still have a mortgage and perhaps school or college fees to pay. Or you might want to buy your children a car or help them onto the property ladder. There may, in fact, be all sorts of things you’ll want to do but won’t be able to because you didn’t start investing earlier.

Another excuse that people use to put off investing is that they’re waiting for a crash or market correction. This is a particular problem just at the moment. At the time of writing, the global bull market in stocks is eight years old and markets are at, or near, near-record highs. We keep hearing people say that a downturn may be just around the corner. The fact is, though, that nobody knows. True, markets could crash tomorrow, but by the same token, they could carry on rising for several more years. Historically, waiting for a crash before you invest has been a very bad strategy.

The other thing you need to remember is that, as long as you’re not approaching retirement, falls in stock prices are not necessarily a bad thing. Indeed, younger investors should actually welcome market falls because, if you’re putting away money on a regular basis, you’re actually buying into stocks at a cheaper price after a crash or correction. The big advantage that younger investors have is time, and the bottom line is that they can afford to wait before they access their money.

We’re not suggesting it’s going to be easy. There are many competing demands on our money. Very often, the more successful they are, the more people feel they need to reward themselves with luxury items, or to maintain a lifestyle befitting their professional status. But just imagine being able to talk to your future self. What sort of things would the future you say to you today? Particularly about your spending priorities and how much you’re putting away?

The biggest problem young investors face is a lack of self-control. But you owe it to the future you to show a little self-discipline. As the famous investor Warren Buffett once said: “Investing is forgoing consumption now in order to have the ability to consume more at a later date”.

The secret, then, is to try to make an emotional connection with the older you. Learn to love that person and look after them. Do what you can while you’re young to ensure that, whatever happens in the intervening years, you’ll celebrate turning 50 and 60, financially secure.

Even the little decisions we make each day affect our future lives. So think carefully about how much that daily caffeine fix is costing you. Do you actually need that designer outfit? That high-performance car would be fun to drive, but can you really afford it

Go on, do it. Start investing now. Or, if you already are, resolve to invest more. Set yourself a savings target and make sure you stick to it. Remember, your future self will thank you.