when to begin investing

A solid investment strategy is a very important element in ensuring that an individual. s future goals are met. A sure way to run into financial trouble during retirement (or any major life event) is to ignore the need to create and implement a wise financial plan well in advance.  With this in mind it is never to early to begin investing. The earlier a person starts, the more benefit he will gain from a powerful market force called, compound interest.

Compound interest is money earned on an investment which is reinvested and creates additional interest. Over a long period of time this factor influences the total sum of money in a significant way. Let. s take a look at a simple example.

EXAMPLE

A person invests $3,000 at age 25 and does not plan on touching the money until age 65. The investment produces an annual 10% rate of return during that time. At the end of year 1 the individual has earned $300 dollars of interest. This money is reinvested along with the original amount. After year 2 the money ($3,300) has earned $330. Each year the interest remains at 10%, yet the total continues to increase. At the end of year 65 the total has grown to a respectable $135,778. As you can imagine, this figure would be even larger if additional investments were made during this time.

Since there is such a strong correlation between compound interest and principal growth, many people  have wondered about the proper relationship between children and investing. After all, if longer investment periods equal larger totals, then perhaps it. s in an individual. s best advantage to start before reaching adulthood.  In theory this is true, however, children generally lack the funds and knowledge  necessary  to make wise investment decisions. This being said, there are a number of feasible alternatives.

• Parents or relatives can start an investment plan on behalf of the child. As the child grows this can be used a wonderful tool to teach them basic financial (and investment) concepts.
  
  
• Many children receive savings funds and some receive trust funds.These generally are not accessible until the later teenage years.Teach your children basic principles and prepare them (with your help) to invest a portion of the money when it matures.
  
  
• When a child enters the teenage years and begins to work, this would be a great time to set aside a small portion of their earnings into an investment plan. Not only would they be taking full advantage of compound interest, but additionally they will be establishing a wise pattern of behavior that will serve them well later in life.

There is no magic age that a person must reach to begin investing. Likewise, it is never to late to begin investing. If you are reading this today and retirement is only a few short years away don. t assume it is too late. Although you will not be able to take full advantage of compound interest, nonetheless, the sooner you start the more benefit you will receive. So don. t delay, begin formulating an investment plan today.