Why You Need To Start Investing Young

The answer lies in the most useful, but most scarce (limited) resource ever: TIME (and yes, time does indeed equal money). You will take advantage of compound interest paired with time; along with the right investments, you can have a capital powerhouse.

The magic of compound interest

 Compound interest does wonders for young investors in the long run (it’s not magic, it’s just basic math). Here are a few monetary examples that will get you to start investing at a young age.

-If you had invested $1000 in Berkshire Hathaway (BRK-A, Buffett’s company) in 1964, and patiently waited 50 years until 2014, you would have $18,261,630 (a whoopin’ 1,826,130% gain).

 Let’s visit a few examples, with fixed variables just to show you what compound interest can do:

Let’s say you invest $8000 today, into a fund that will average out 8% a year, compounded for 33 years:

Year 1:     $8,640

Year 5:     $11,754.62                             Year 30:   $80,501.26

Year 10:   $17,271.40                            Year 31:   $86,941.36

Year 20:   $37,287.66                           Year 32:   $93,896.66

Year 27:   $63,904.49                           Year 33:   $101,408.40

Year 28:   $69,016.85

Let’s say instead of starting to invest when you’re 22 years old, you start later at 25.

That’s a 3 years difference. By the time you hit that $80,501.26 mark, someone who started 3 years earlier would have $101,408.40. Imagine what you can do with an extra $20,907.

Let’s go with a more eye-opening example, a fund that yields good results: 

 Let’s say you invest $12,000 today, and another $100 monthly into an amazing stock or fund that will yield 15% a year compounded for 23 years.

Year 1:     $15,095.42         Year 19:   $285,052.50

Year 5:     $32,870.49        Year 20:   $329,105.79

Year 10:   $74,848.51         Year 21:   $379,767.08

Year 15:   $159,281.30       Year 22:   $438,027.56

Year 17:   $213,434.67       Year 23:   $505,027.11

Year 18:   $246,745.29

Like the previous example, instead of starting at 22, you start at 25. Within those 3 years, you’re lagging behind $175,921.32 compared to someone who started at 25. You’ll have $329,105.79 (still very good) while you could have $505,027.11 (half a million dollars-even better), if you had just started 3 years earlier.

Think about it… that difference is enough for a considerable downpayment on a condo/ house in Toronto, Canada or can be used as retirement income.

Of course, this example fixes a lot of variables and requires a good return of 15% compounded over 23 years (rare, but yes, this type of performance does indeed exist): it shows the importance of time and starting early in investments.

 

“A low-cost index fund is the most sensible equity investment for the great majority of investors…by periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals”.

-Warren Buffett

Now let’s say you decide to buy an index fund, as suggested by Buffett. Let’s keep it simple and select the Dow Jones Average. In 1915, it was $1,304 (inflation adjusted) and is currently sitting at around $17,360 as I’m writing this in late spring 2016. In 101 years, it went up around a total of 1,352%. That’s a multiple of about 13 times your investment. Compound interest paired with time does wonders.

If you’re worried about the market crashes and depressions, note this:

The Dow Jones Average survived the Great Depressions and countless others, 2 World Wars, more wars that followed, oil glut, the dot-com bust, the subprime mortgage crisis, etc. and will continue to survive and strive for times to come.

Mistakes

Mistakes are inevitable, they are part of the learning curve but you want to learn from it early, not late. Starting early will leave you room for mistakes. It allows you to adjust your strategies and gives you extra time to learn.

“If you love life, don’t waste your time, for time is what life is made of.”

-Bruce Lee

In summary, the examples provided have many fixed variables. The goal was to illustrate the difference even a few years can make in compound interest output. I am not implying that investing in stocks, bonds, index funds, mutual funds, etc. is the only way to take advantage of time. You may even choose to invest in your very own business.

Therefore, first investing in yourself could prove to be an invaluable investment, paired with time, your skills will grow exponentially which may provide you with valuable breakthrough ideas and investment knowledge.

All in all, start early, not late. Perhaps the earlier you start, the earlier you get to reaching your goals, and perhaps then, the more time you’ll have to enjoy your definition of a successful life. I would recommend the following books for those beginning in investing, the knowledge I have acquired from them are invaluable.

Of course, JMO (just my opinion).

For beginners, I would recommend the order as follows:

 1-The Neatest Little Guide to Stock Market Investing by Jason Kelly (I read this first too).

2-The Intelligent Investor by Benjamin Graham (Life changing book)

3-One Up on Wallstreet by Peter Lynch

4-Common Stocks and Uncommon Profits by Philip A. Fisher

5-Technical Analysis of The Financial Markets by John Murphy

6-Options made Easy by Guy Cohen (Just to explore derivatives)

10 Legit Ways to Make Extra Money as a Student

For this list, I include things you can do that are flexible on your schedule. Also, let’s not resort to selling your personal belongings to make money (were not THAT desperate…although you should sell items that no longer have value to you).

1. Become a tutor

Let’s say you do very well in a mandatory course in college or university, congrats! You can now be a self-employed tutor. Usually mandatory business courses like intro, intermediate and even advanced finance, accounting and stats will have demand for tutors. Especially near midterm and exam time. Simply post on Kijiji.ca, Craiglists.com or even your University/ College social group. You can even put out flyers if you want, just remember to keep your expenses as low as possible. You can set your own prices and your own time. I suggest building your own clients and slowly expanding. Be mindful of your target group and set prices accordingly.

2. Sell your notes 

Over the past few years numerous sites will pay you for taking notes in class. This won’t make you a tremendous amount of money, but if you attend class and take good notes, you can upload them for some extra cash. Here’s a popular site where you can upload your notes online: www.oneclass.com. If you don’t want to have your notes online, you can take notes for your university for students that are unable to attend the class, check with your department.

3. Become a background actor

This is a bit harder to do, as you do need to be employed under an acting agency. But it doesn’t really require much skill, the pay is usually good (for the amount of actual work you do); as a background actor, most of the time you just sit around the set and do nothing while getting paid anywhere from $100-$400 (depending on how long your on set for). Plus: You might be able to meet some celebrities. If you’re in Toronto, here are some agencies that you can apply to: TFX, ACTRA TORONTO, and OnSet Talent Agency.  

4. Become a mystery shopper

This will require you to register with a certified mystery shopping company. Essentially, you just go to the assigned shop and go through a checklist, filling in this review-like form, of course all this is performed with discretion. Usually you have to pass a 30 minute online test about the company before being assigned the task. Do some proper research around your area to find a valid mystery shopping company. The range is $10 – $25 per task.

 5. Make a website

Here is where you can focus on your passion. Make a website about something that you’re passionate about and that can translate into value for your viewers. You can start a free blog on web-hosting and template sites such as Wix, TumblrWeebly or WordPress, and many more with a quick online search. You can pay for your own domain name later if you want. You generate income by using advertisements or affiliate programs. One of the most popular advertisement networks is Google AdSense, and widely used affiliate program is Amazon Associates. It might take some time, but nothing of value comes easy!

6. Start your own business

This can may seem hard for some but it’s a lot easier once things are broken into smaller tasks. Let’s say you love making handmade things and you’ve always wanted to sell it. Obviously, you can be old-fashioned and go door to door, but aint nobody got time fo dat! Or you could put it online on sites like E-Bay, Amazon and Etsy. Let’s say one of your passions and skills is not a product but a service such as computer repairs, cleaning, planning, etc. You can make free posts on sites like Kijiji, Craigslist and social medias to get your service out there. All in all, try to keep expenses as low as possible. You are now “self-employed”.

7. Be a reseller 

Buy low, sell high. To do this, you need an account on Kijiji and Craigslist. This will require research in a specific field or industry. It will require some capital to start but not tremendous amount, but it might consider much research, depending on your current knowledge. For this, you just trade your way up. This example will clarify this odd job:

 Let’s say you know the prices of IPod touch very well (used and new). For instance you see a post: “Selling used IPod touch, 5th gen 16 GB, great condition for $130”. You meet up in a public place with the person and the device is in great shape, a small scratch on the side, but it works like new and has a warranty on it. You buy it for $130 and you post it back online for say $170. Always buy it for the cheapest price, so you have a margin of safety. You could also buy sets of tires and rims and combine them (and shine them) to create a more valuable product for sale. Anyways you get the point: Buy low, sell high. Learn about the prices and goods you’re trying to merchant.  Meet in public places and be safe when trading!

8. Sell stock photos

This is great for students who have their own camera or can get their hands on mom and dad’s camera. You don’t necessarily have to be a photography student, but you can always take pictures of stuff, backgrounds, skylines, city lights or whatever you like and post them up for sale on sites like: IStock, Dreamstime and BigStock. You can even use your IPhone or Android device if you don’t have a camera.

9. Become a cleaner

If you love cleaning and keeping things neat, this is perfect for you! This does not require any particular skill, just a bit of attention to detail and you’re golden. Buy some cleaning supplies on sale and post an ad as a cleaner or look for companies that contract cleaners for events. PS: Get some extra gloves for those once in a while extra dirty places.

10. Join study groups

You’ll see these ads all the time. They usually require a few hours but if you have nothing better to do, joining a study group will get you one step closer to those Yeezy’s you’ve always wanted. It usually involves meeting some requirements (for instance, 18-25 years old, non-smoker) and just answering a bunch of questions. I am not encouraging any of the ones where you need to take weird pills, or insert devices in your head… of course, that’s just my opinion. All in all, questions for cash, if you’ve got nothing better to do, why not?

All this is is JMO (just my opinion). Feel free to share your (legal) side hustle. Cheers!

Check out why you should start investing your money that you side hustled for here.