What are your financial goals? Perhaps you want to save for retirement or your child’s education – it’s better to start sooner than later.
The ‘I’m young. I still have plenty of time to save money’ attitude could end up costing you a lot more time and money in the long term. Rather, speak to a financial advisor and with their guidance, decide on an investment or retirement product that will suit your needs.
The true cost
Every month that you choose to spend money that could potentially be saved, increases the amount that you’ll need to save to reach your ultimate financial objectives. There will also be a concurrent effect on when you will reach your goals. This is the case no matter which investment product you choose.
When it comes to investing, time can be your best friend or worst enemy. For example, if investments are returning 9% per year and you need to meet your objective in 10 years’ time, delaying saving for just 18 months will increase the amount you need to save per month by more than 25%. In addition, if your timeframe is five years, an 18-month delay results in more than a 50% increase in the amount you will have to save on a monthly basis.
One of the key factors to extracting maximum benefit from your chosen investment is to understand that this is a long-term commitment. Market fluctuation can influence an investor to panic and cause them to sell or switch accounts too quickly.
Fluctuation exists on paper and is not a risk in itself unless you withdraw or switch when your investment has lost value. If you do this, and reinvest when the market has improved, you’ll be starting from scratch. Rather, keep a level head and stay focused on your long-term objective.
Long-term objectives beat short-term gratification
You want to make significant returns on your investment and that’s why the combination of having a clear plan of your financial objectives and choosing the right unit trusts and/or investment product(s) are important.
For example, if you’re looking for a short-term investment that is stable but can still offer greater returns than a bank deposit, a money market fund is advisable. There is potential to make some short-term gains even if you’re making small contributions. The money is preserved and is accessible. However, it’s important to understand that the size of the returns is relative to the size of the contributions.
If you then decide to take that money and switch to a long-term investment fund such as an equity or balanced fund when the market looks appealing, you’re going to have to re-think your financial objectives. These funds require a long-term investment commitment, being comfortable with short-term ups and downs in order for compound interest to increase the value of your money over time.
In summary, whether you have short-term or long-term financial goals, starting to save as soon as possible can be beneficial when combined with a sound investment strategy.