When is the right time to start investing?

Whether you’re 25 or 55 and wondering if it’s too late to start investing, Bob Tannahill explains why we think now is, in fact, the right time to start investing.

We often get asked if now is the right time to start investing or whether it’s too late to start investing. Aside from the unavoidable short-term vagaries of markets, people often worry that they have too little money to invest when they are younger or that they have too little time left when they are older. The good news is that neither of these is necessarily true. In this article we want to illustrate, with some examples, why we believe that, in most cases, the best time to start saving and investing is now.

The 25-year-old

Younger people often worry that they have too little to start investing, however the key benefit of youth (from an investment perspective at least) is that you have a long time horizon. Take a 25-year-old starting to save for retirement at 70. Those 45 years allow for a huge amount of compound growth that can work magic on even small sums given time.

If, for example, our 25-year-old started saving £100 per month into a long-term growth portfolio¹ the results on the next four and a half decades to their retirement date are impressive. Assuming they increase their monthly contributions in line with inflation, of course. When they come to retire, they would have saved over £238,000, in today’s money, which is roughly 4.3x their total input of £55,200 and a decent contribution towards their retirement. This is the power of compound growth over the long term; it means even a small monthly sum can build to a meaningful sum of money given time.

It’s worth emphasising that the amount you start investing with – whether this be a lump sum or regular contributions – doesn’t have to be large. As we can see with this example, even small, consistent contributions can add up significantly over time. Starting with whatever amount you can comfortably afford, and then consistently adding to your investment over time, can lead to substantial growth in the long run.

The 55-year-old

On the other hand, older people often worry that, while they may have some savings, they don’t have the time to benefit from the compound effect seen in the previous example. A 55-year-old today does have less time until retirement – around 17 years in Guernsey under current rules – but this is still enough to have a good impact, especially on existing savings that are currently sat around not earning as much as they could.

If, for example, our 55-year-old had £25,000 of savings in a current account not paying much interest they could benefit significantly from getting that money working harder for them. If they moved those savings into the same type of long-term growth portfolio as the 25-year-old they could potentially approximately double the value of that money by the time they came to retire in today’s money terms. This is a great example of why we believe it’s well worth ensuring any long-term savings are working hard for you. The Ravenscroft fund range offers cost effective investing from as little as £5,000, which means it can be a great way to ensure even smaller sums are pulling their financial weight.

In conclusion, when it comes to investing, one of our favourite sayings comes to mind in this case:

The best time to plant a tree is 20 years ago. The second-best time is now.

It is of course important to bear in mind that individual circumstances vary. If you would like some help in deciding if investing is right for you and the best way to go about it, please feel free to contact a member of the team here at Ravenscroft.

Related articles that may be of interest:

• Podcast: Evaluating your investment strategy ahead of retirement
• Savings vs investing: Which is best for you?

Data Explainer

• Performance data for the “long term growth portfolio” referenced above is based on the MSCI World Index. It is quoted in Sterling total return terms (including both capital gain/losses and income) and uses data for the period 30/11/1993 to 30/11/2023 after representative fees. All figures are adjusted for inflation based on the UK Consumer Prices Index (“CPI”) data as compiled by the Office of National Statistics. Data collated 24/01/24.

• For ease the above case studies are calculated in “today’s money”. This means that we assume that all future values, contributions in or withdrawals out, are adjusted for a long-term average inflation rate of 2.4%. This is based on long term historic rates of inflation in the UK. This makes assumptions that inflation will be around this level in the future and that contributions are raised each year in line with inflation. We think this makes the case studies easier to understand as the figures can be thought of as representing what the amounts would mean to someone spending them today.