When it comes to the “right time to invest,” one of the most important and frequently asked questions is that we see from investors is, what matters more: age or knowledge? We see this question pop up on various investing websites so frequently because people often look for a quantifiable way to determine their readiness to start investing their money. These two indicators – age and knowledge – are two of the most common and obvious factors that people turn to in order to make this decision. However, some potential investors believe that having an “unsatisfactory” age or a low level of knowledge regarding an investment should prohibit a them from making any investment at all. In this article, we will explain why both age and knowledge do matter for tentative investors – but each in different situations.
First, let’s start with age. If you search anything about age and investing on the internet, you are likely to find articles about compounding. In other words, many analysts will promote the idea that investing from a young age can be beneficial because you give your money more time to grow on itself. With regard to this idea, we would like to say that if you can capitalize on a little extra compounding, it could be great for your investment goals! However, does this statement mean that you absolutely need to start putting your money into stocks on the day you turn 18 to make a significant profit? Certainly not. It also does not mean that you cannot start investing at age 65 and still realize meaningful profits, either.
Of course, the other big financial target that typically goes hand-in-hand with age is the necessity of having monetary savings. When investors speak about the importance of age, they typically refer to this need, at least as it relates to an investor’s ability to cover investment service fees. Further, they state that investors may think about looking for investing platforms with very low (or no) account minimums. Basically, these points show that as long as investors can cover the inherent costs to investing and also have money to put into different investments, being “too young” may prove to be a very minimal deterrent from investing. So, for any of you who have read online that there is a “right age” to start investing, know that there is no age limit or cutoff for making smart financial decisions. The key goal is preparedness.
This brings us to our next point, which is the discussion of knowledge. For many investors, the knowledge metric is more important than age. By reading up about different investments and learning about different strategies, an investor can prepare himself or herself to make investment decisions that are better-suited for their investing plans. Conversely, if an investor jumps in too early without understanding the processes of investing – regardless of how old he or she is – that investor is far more likely to make avoidable investing mistakes.
Ultimately, the main point is that knowledge is a factor which can be relatively quickly. As you know, it is very possible to read up on different investments and speak with investment professionals until you feel comfortable putting your money somewhere. On the other hand, the only way that you can change your age is by waiting. By waiting too long, investors may lose out on some of the value of compounding that they could have found otherwise. Therefore, if you are a tentative investor and over the age of 18: find your strategy and read up on possible investments. There is no exact right or wrong time for everyone, as long as you feel prepared to jump in!