Is now. This is an old saying. Actually, it’s a saying about a tree, how planting a tree is best done well in the past. But how if it hasn’t happened before, it’s best to do it now. The metaphor is apt. As Buffett said, “Time is an investor’s best friend.” Starting a simple investment now can yield enormous benefits in the future. So I guess I’m writing these posts to two different kinds of people: the young and the not young.
Young people, if you are old enough to read, try to find a way to set some money aside for index mutual funds. What are index mutual funds, you ask? An excellent question. You may have heard of the stock market. American businesses are so big (think how big the Apple company is), that they don’t have single owners. Instead, they have what is known as shareholders. “Shares” are little parts of a company. They’re cut up so small that you can even buy one if you have $50 or so. People buy shares of companies because they think the companies are going to become bigger and more valuable in the future. If that happens, the person’s share that they bought for $50 might grow to be worth $100. But imagine if they had 1000 shares. They would make a lot of money!
The problem is, it’s hard to predict what companies will grow and which will fail. In fact, most companies fail. So mutual funds take tiny little pieces of shares for every American company over a certain size, and package them together in a single “fund”, which you can buy however much of you want. As companies come and go, they’ll come and grow from the mutual fund, based on the “index” of companies which exist at that time. Funds like these grow with the American economy, which is always growing, so your portion grows along with it.
Because any profits that you make on index funds can be used to buy more fund, you can start to get a snowball effect on your investment: earning more and more as time goes along. But you’ve got to start early to see this really take off. In fact, people who start at age 18 will see a lot higher earnings over their lifetime than those who start at 28.
But that doesn’t mean that older people shouldn’t start investing now, too. There are a lot of ways to get the money you need in order to invest. An annuity sold will give you a nice lump sum to throw into mutual funds. Other people use portions of their income each month. Other people, especially young people, might be able to get their parents or relatives to give them money, as long as these older people understand what they’re using it for. The point is that getting the money and starting it to grow is the most important step. Time is your friend when it comes to investment, so if you didn’t start 20 years ago, start today.