It may come as a surprise to learn that the biggest regret most people have with their investing is not where they've placed their money. Nor is it the fees they've paid or the types of investments they've made. Instead, the number one regret people have with their investing is that they didn't start sooner.
When we make investment projections for our clients, we often look at what the projected result will be based on a number of years of investment timeframe. For example, if we invested $100,000 for 10 years and received 5% as an annual rate of return over that time, the end result may be around $163,000. Sometimes a client will answer by saying "that's all well and good, I just have to live long enough!" and while this is true, it's not the whole part of the story. The other way to extend your investment timeframe is to begin at an earlier start date rather than wait until all the stars have aligned perfectly.
So how do you start an investment plan earlier in life, particularly when that timing usually lines up with having the most financial commitments? There are certainly a lot of drains on cashflow in the younger years – you may have mortgage repayments, kids to put through school, and simple living costs thrown in on top. It's not always easy to find that little bit "extra" to put towards an investment.
The message we'd like give this week is that you don't necessarily have to start your investing with a large amount, but you do have to start! One practical investment amount for many people is that chunk of money that comes back into circulation after doing a tax return. But for this idea to work, you need to be willing to set that amount aside, rather than bringing it back into circulation for spending. This is generally possible to do, provided you remember you've already been without that money for 12 months and the world hasn't stopped spinning.
Did you know the average tax return figure in Australia is $2,300? So let's see what this can grow to over time:
If you invest your $2,300 and add to it every year with the same amount of tax return income, and you hold that investment for 10 years earning just a 5% rate of return, your lump sum at the end of 10 years is now almost $33,000. If you're a couple and both working and you apply this idea, your investment amount is doubled. This is before assuming that the average tax return figure will likely increase over time. So who wouldn't like a $66,000 lump sum that you've generated from money that you haven't missed in the first place?
Our suggestion is to make a start with your investing and to also make use of the resources available to you to do so. If you've felt hesitant about committing to an investment plan, however small, ask yourself the question "If not you, who? And if not now, when?" And if you've got any questions at all about this or any of our other ideas, please don't hesitate to contact us for help on your personal position.