"Someone is sitting in the shade today because someone planted a tree a long time ago."
- Warren Buffet.
The quote from billionaire investor, Warren Buffet, sums it up perfectly. Starting to invest from a young age seems simple, but not a lot of people think too deeply about the future in their teenage years. Basic investment principles start with the time value of money and the exponential effect of compounding interest rate.
See the following example:
Brian invests R10 000 at the age of 30 for his retirement, believing he would want to retire at the age of 70. The investment is made for 40 years at a fixed interest rate of 8%, compounded daily.
At the age of 70, Brian’s investment grew to R245,239.30
Julia invests R10 000 at the age of 20 and would also like to retire at the age of 70, so Julia invests for 50 years at a fixed 8%, compounded daily.
At the age of 70, Julia’s investment grew to R545,742.15. With 10 years difference Julia’s investment grew to more than double the size of Brian’s investment.
When you invest from a young age, you learn to look at money and wealth differently to your peers, and you are miles ahead of them in the knowledge you will gain. I love stocks and invested from a young age which made me look at the world from a different perspective. You get to know the companies that you invest in and the products they sell or services they render. When you go to parties or even walk down the street, you see the companies at work with regards to advertising, noting the spending habits of people, and directing the latest fashion trends of millennials.
#2: Pay off your debt
Your best investment is to pay of your debt as quickly as possible. As wonderful as the effect of compounding interest is, you don’t want to sit on the wrong side of that equation. Student debt is a good example. Taking out a loan for your studies is an investment in yourself and your future, but it is essential to be disciplined in the servicing and repaying of that debt.
Do not make cash loans or dip into your credit card to pay for your monthly expenses. See your credit card as any normal bank account, and only use the cash that you have. Using your credit card for basic monthly expenses becomes a slippery slope, and I know a lot of people that struggle to pay off their credit card in the long run.
#3: Set goals
Set yourself saving goals. It is easy to set up a monthly contribution by means of a debit order that is a fixed 5% or 10% of your monthly income. Budget for your expenses so that you don’t dip into your savings fund. Use your savings to invest in stocks or ETFs that track the market.
#4: Read the financial news regularly
You don’t need to know what is happening in the market on a daily basis, but make a habit of reading up on local and world markets at least once a week. You will be surprised at how quickly this will become a habit and you will love yourself for it. Read up on the companies that you invest in and the products that they sell. It is also good to read a few books on investing.
Some easy-to-read books are:
- The Richest Man in Babylon - George Samuel Clason
- Think and Grow Rich - Napoleon Hill
- The Snowball: Warren Buffet and the Business of Life - Alice Schroeder
- Elon Musk - How the Billionaire CEO of Space X and Tesla is Shaping our Future- Ashlee Vance
- Disrupt Yourself - Jay Samit
It is never too early to start investing, but it is also never too late. At Sharenet, we offer a wide range of investing opportunities from unit trusts, individual stock portfolios, managed accounts and CFDs, and will help you tailor your portfolio to your needs.
Analyst and Securities Trader
Daniel is a full-time analyst and securities trader, and is responsible for equities research across industries. Although he grew up in a small town in the Klein Karoo, Daniel has always been interested in both locally and internationally traded companies. Daniel has been actively investing and trading on the JSE and other global exchanges since starting his Bcom Investments Degree at the University of Stellenbosch, which he completed in 2014 . During his studies, Daniel worked as an intern at Kruger International in Johannesburg in 2015, gaining valuable experience from Hein and Mia Kruger. He is currently a CFA candidate.