13 May Is age really a number when it comes to investing?
Twenty-twenty is the beginning of a new decade, a new beginning for some and the close of a chapter for others.
If you were born between 1991 and 1999, you would have lived in three decades, over two different centuries and two millennia’s and you are not even 30 yet.
When you are younger, you are overwhelmed by the financial responsibilities that concern you more than saving towards your future or retirement. But does your age really have an impact on investing?
From our experience, yes, your age has a big role to play in timing the market when investing. The more time you have the more risk you can take. The higher risk you take also means the higher reward you will receive when it is needed most. The key factor is that when you are younger you have a secret power. It is the power of compounding. The longer you are invested the longer your capital has to accumulate.
For example: If you are 40 years old and start investing R1000.00 per month in a investment that had an annual return of 5% (taking into account inflation), you would have accumulated R379 347 at the age of 60.
However, if you started just 10 years earlier (at the age of 30), with the same investment, your savings would nearly have doubled and be worth R780 070 by the time you are 60 years old.
Looking at the trends of Millennials that do not like to take too much risk, their investments have a slower and lower growth ability. According to a survey done by Bankrate in the US*, 30% of Millennials think cash is king. We think this is because they have lived through the hard times of previous generations of the 2008 crisis.
We think that cash has a purpose, for example having an emergency fund in cash is great. You should however not have all your eggs in one basket. Slowly, over time, you will be eating into your capital from the effects of inflation and fees, which will diminish your investment worth. Diversifying your portfolio to take advantage of the returns from South African equity and more importantly global equity is important. Life is all about balance.
The Nedgroup Big Picture™ shows a great example** of how investing in the different asset classes over time, can change the effects of your investment at the end.
Millennials are going to be the first generation that is in retirement longer than they were in the working environment. Our advice to them for a better investment path is:
- Accumulate more capital now in order to sustain your life in retirement,
- Save whatever funds you can on a monthly basis,
- Be savvy with your portfolio – invest in tax practical investments and diversify your portfolio and,
- Use your secret power and invest with ‘compounding’ always in mind.