The best age to start investing was when you were born.
The next best age is how old you are today.
Investing in the sharemarket is something that is easy to say you will get around to one day – when you have more disposable income and your budget isn’t so stretched.
But if you can manage to squirrel away even a few dollars a week now, your future self will thank you.
Easy to say, right? Let’s look at some numbers
Imagine you start investing with $1000 and tip in $10 a week (that’s less than the cost of two takeaway coffees) for 20 years, in a fund that delivers an average annual return of 7 per cent.
You would end up with $25,612 at the end of it – and the kicker is that you would have only tipped in $10,400 of that, as the rest would be investment earnings.
The earnings alone could fund most of a European holiday (whenever we get back to international travel).
OK, let’s say you wait until you’re earning more money: You start with the same $1000, contribute $50 a week (maybe the cost of Thai takeaway for the family), but this time only over five years, with the same average annual return of 7 per cent.
In this scenario you would end up with $16,929, having earned $2929 in investment earnings. In this case, the earnings would maybe only cover your flights to Europe.
It doesn’t take long to realise that it pays to start as early as possible, even if you can only start small.
How can I run the numbers myself?
Chronos Private principal adviser Chris Giaouris suggested using the Moneysmart compounding interest calculator to help you see what is possible over time.
“It helps you see some real-life figures, which people can understand better than something that’s a bit more airy fairy, like ‘just do it, it’s in your best interest’ or ‘it’s going to be good for you’ – that’s not always enough for people,” he said.
It’s important to understand the reason why you’re investing and to have a real-world goal in mind, Mr Giaouris said.
“If you can actually see the outcome at the end of it, you are more likely to stick to the strategy, whereas if you’re thinking, ‘Everyone else seems to be doing it, maybe I should’, it doesn’t ground you very well so if things get tough, it’s quite easy to walk away from the plan.”
Where can I start?
If you want to start investing in shares but you don’t have a lump sum to get started, you could try micro-investing apps such as Raiz Invest, which allows you to invest small amounts in exchange-traded funds (ETFs).
ETFs are traded on an exchange like the Australian Securities Exchange (ASX) and are made up of a bundle of securities like shares, cash and bonds.
You can open a micro-investing account with as little as $5 and either make lump-sum contributions, recurring investments or have purchases rounded up to the nearest dollar and transferred to your Raiz account.
“You don’t need a lot of money to start … you can literally put away one or two dollars each time,” Mr Giaouris said.
“Things like that make it so much easier to start off small.”
Should I leave spare cash in my mortgage offset account instead?
Mortgage interest rates are so low now that if you’re comfortable with taking on some risk, and you’ve got a timeframe of at least seven years, you might consider pulling some cash out of your offset account and investing it in the sharemarket.
For example, Australian shares have returned an average of 6.5 per cent a year over the past decade, according to Moneysmart.
Mr Giaouris said it’s easier today than it was when mortgage rates were between 6 and 8 per cent to better the interest you’re earning on cash in your mortgage offset account.
“If your (mortgage) interest rate is 2 per cent, you only need to beat 2 per cent to be ahead of [where you would be] if you left that money in the offset account,” he said.