When should I start investing?

For many people it is a life event such as getting engaged or a new job that gets them started on their investment journey. But as long as you have covered the basics, it is never too early to start.

What are the basics?

The right time to begin investing should be when you have created a financial buffer for yourself with a savings strategy and are in control of your debt.

A general rule of thumb is that you have saved up three month’s salary, or more, so that you can cope with a sudden change in your financial situation.

When you have savings in place the next steps are to create an investment plan that works with your lifestyle:

• Set a budget
• Understand your goals
• Set realistic timeframes to achieve your goals
• Assess your risk tolerance

The earlier you start investing, the more time you have to achieve your goals and also benefit from compound interest.

Getting the benefits of compound interest

Compound interest is when you earn interest on your interest.

How does it work?

If you have money in a savings account, that money will earn interest. If you don’t withdraw that interest, and instead leave it in the account, it will increase your account balance.

When your next interest payment is calculated, it is calculated on the larger account balance and earns even more interest. And so it goes on.

Compounding works the same way for investments. If each time you earn a dividend, distribution or income payment from your investment you reinvest these funds to buy more units or shares, your reinvested earnings will generate additional earnings.

Compounding can make a significant difference to the value of your savings and investments over time.

The longer your money is invested, the bigger the effect compounding can have, so to take full advantage of this strategy, think about starting early.