When Should I Start Investing?

Hey! I’m Motley Fool contributor Dan Kline and on this episode of FAQ we’re talking about when you should start investing and how starting as soon as you can will help with all your long-term financial goals.

In most cases, we tell beginners that the best time to start investing is NOW, but there is one big caveat. You should pay off any high-interest debt before investing. What counts as high interest? Anything over the 9-10% annualized return you can expect over the long-term from investing. Those returns, of course, aren’t guaranteed, but that’s historically what has happened when you factor in stock prices rising and dividends.

So, before you start investing pay off your credit cards, personal loans, and payday loans if they’re over that threshold. After that, it’s time to figure out how much you can invest.

To decide how you should invest you need to do one major thing first and that’s make a budget. Examine how much money you have coming in and how much you have going out. Break down your mandatory expenses like rent or mortgage, car payments, food, utilities, and any other pay-every-month bills and then look at your discretionary spending -- things like entertainment and eating out.

Ideally, you will have a surplus and that’s money you can invest. Of course, that does not mean you should only invest that money. You may want to tweak your budget and make spending cuts in order to be able to put more into your investments. You may also consider taking on a second gig or a side hustle to further your long-term financial goals.

Once all of that’s settled, it’s time to start investing and that can be scary. The stock market isn’t something most people think about on a day-to-day basis and much of the news about it focuses on the extremes.

It’s important to remember what stocks are. They’re shares of individual companies. You may not be able to read a balance sheet and you probably don’t read quarterly reports but you do have brands and companies that mean something to you. Start there.

We’re not going to fully go into how to start investing -- that’s a broader topic for a different episode -- but when the time comes remember the old adage that you should buy what you know. I, for example, own shares in Apple and Microsoft -- two companies that are part of my everyday life that make products I love.

New investors should also be aware of index funds. An index fund is collection of stocks designed to match a market index -- like the S&P 500. This lets you invest your money broadly with performance not dependent upon one company but the market as a whole. This is a great way to get started without having to become a stock market expert.

However you start, the most important thing is that you do start and that’s because of the magic of compounding. Okay, it’s not really magic but compounding can work wonders if you start early.

What is compounding? It’s the concept by which your money grows over time because you’re not just experiencing growth on your original investment but on any gains it has made.

Imagine if you buy shares in a company that sells robot-produced pizza and coffee, well call it Robo Joe & Pizza. If that company grows by the market’s historical average of around 10%, a year one investment will be worth $1,100 at the end of the year. A year later, assuming the same 10% growth, your investment will be worth $1,210.
It starts slow but after 10 years you’ll have $2,594 and in 15 you’ll be at $4,177. Of course, the stock market isn’t that predictable. Your portfolio won’t increase by 10% exactly each year but over time, but this is generally how compounding works.

Invest early and your money will go to work for you. Over time, relatively small gains can produce a big balance in your retirement account. Using a simple compounding interest formula that assumes a 10% gain, $1,000 invested at 20 would be worth $72,890.48 at 65. Shorten that time table from 45 years to 20 and it’s only worth $6,727.50.

That’s why investing isn’t something you should put off. It’s a lot easier to meet your retirement goals if you start early. You don’t have to be a genius or even pick individual stocks. You can buy index funds -- and like one of those rotisserie cookers -- set it and forget it.
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[fernandomorales]

Guys are giving me hope and confidence.

[flipthecoin.]

You're doing a good job, really.

[saulmunn]

Why is the background music so loud? I'd love to hear what he's saying...

[craigcowles]

HOPEFULLY THIS WILL BE AVAILABLE FOR ME TO WATCH AGAIN AND AGAIN

[gusmill]

Quick question to anyone who might have some idea on this topic.
So am investing through robinhood right.
As we all know if you investing short term your gains is tax at about 37%, where as longterm it tax at abour 15% for every dollar you earn.
But my question is for example;
If I brought 2 stock into a company on April 1
Than I brought another 2 stock in that same company on April 5
By april 10 I decided to sell 3 of those stock back with a total gain of 10dollar.
My big question is BECAUSE I DIDNT WAIT LONGER THAN 30DAY WILL I BE CHARGE 37% FROM THE FIRST STOCK I BROUGHT ON APRIL 1 OR WILL IT BE ADDED FROM THE DATE OF MY LAST STOCK PURCHASE INTO THAT COMPANY?
IN OTHER WORDS WHEN DOES THAT 37% KICK WHEN IN WHEN YOU TRYING TO SELLING WITHIN 30DAY OF BUYING A STOCKS WITH GAINS??!!!

[stangtrax]

Now the sooner the better. Most importantly investing in your memories enjoying life too. Do not just buy companies because you know the product, because that doesn't mean it's a financial solid company. I have the rolling history facts on market returns. Good video

[lemontea]

Only invest if you have set your emergency savings, and paid off your debts.

[jenniferm.]

This video is great! Thanks for making a complex topic easier to understand.

[murarikaushik]

Good advice. But worth mentioning that re-investing dividends turbocharges the portfolio over decades.

[santoshkshirsagar]

Please make more videos on investing money. I love motley fool videos. You are doing great job guys!!!

[Lepidopray]

Good advice. Start early and develope the habit.

[cronemoonwoman]

I want to invest in renewable energy, but how do I separate the real thing from the greenwashed bs companies?

[moviedude]

A broader topic for a future video...ok so when is that video coming out?

[hongshi]

Where can I find an index fund that matches my ideals in life? How do I research it? I like the friendly face of the guy who did this video. Thanks

[drleonard]

I joined on April Fools Day 2019. I love Motley Fool!

[drshiz]

Stopped watching video after he said payday loans

[KathyMac]

Thank you and great advice! But what about the people who were young and did not invest and waited until 60 to discover the investment world and Motley Fool?