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What is the right age to start investing? Billionaire Warren Buffett was already buying shares when he was still in shorts and doing a paper round. But we are not all Buffett.
A lot of people might not get around to thinking seriously about putting money into the stock market until they are well into their 30s, 40s – or even 50s.
But is that too late to bother? Absolutely not! As the old saying goes, better late than never.
Early is better, but late’s still worthwhile
A lot of people may put off investing because, at certain points in life, there are too many other demands on their cash. In that sense, someone in their 50s could be at an advantage if they have a higher salary and fewer outgoings than when they were younger.
But timing does matter, because not all decades are alike when it comes to long-term returns. By that I mean investing the same amount with the same return for 20 years does not give just us double the result of doing it for half that timeframe.
That is because, over time, as a portfolio compounds, the early gains or dividends can themselves start to earn more cash.
Long-term investing can be very powerful
To illustrate, consider someone who invests £500 each month at a compound annual growth rate (CAGR) of 5% (which, by the way, I think is a modest goal in today’s market).
Ten years after the person starts investing, the portfolio should be worth around £77,600. After 20 years, it would be worth over £205,000.
The investor has put in twice the money but the portfolio value has more than doubled! Why? Because the longer timeframe allows for the benefits of compounding to be greater.
Over 30 and 40 years, the impact would be even more powerful. That £500 a month at a 5% CAGR would have turned into over £416,000 and £763,000 respectively!
50’s not too late!
Clearly, a longer timeframe is the investor’s friend. But it is not possible to turn back the clock. Fortunately, 50 is not too late to start investing. It still offers over 15 years before the state retirement age.
Some 50 year-olds have a much longer timeframe to build wealth as Buffett is still working at 94. He’s not part of the ‘financial independence, retire early‘ movement, clearly.
Starting at 50, results could be better than in my example above by investing a higher monthly sum than I mentioned, or achieving a CAGR above 5% (or both!)
One share I think investors should consider is M&G (LSE: MNG).
The FTSE 100 asset manager operates in a market that is enormous and likely to stay that way. Thanks to the sums involved, even small commissions can soon add up – and M&G’s customer base is in the millions.
I see its well-known brand, market expertise and that large customer base as strengths. But M&G also faces challenges. It has been battling client withdrawals from its funds that outstrip what is being put in. Over time that could lead to lower profits, threatening the dividend.
Although no dividend is guaranteed, M&G aims to maintain or raise its dividend per share annually. It currently yields a juicy 9.2%.
