Why Does Time Matter? (Part 3)
The final part of our beginner investor series! We have gone over what investing is, how compounding makes it work, and lastly, we need to discuss why time matters. Time is an essential part of investing. Why? Time allows your money to grow! The process of compounding allows your earnings to grow on itself however, it needs time to do that.
When your money is reinvested, it is usually due to an increase in the company's underlying earnings or a dividend. Dividends are usually given on a quarterly or semi-annual basis. Due to this alone, for your earnings to grow it will take years to see a substantial return that will allot you the money for retirement.
There is also a concept known as the time value of money. The concept is that money available now is worth more than the same amount in the future due to its potential earning capacity. Meaning that if you're doing this investing thing properly, money in the future should be worth more than it is today.
Time is one of the essential factors in investing and one of the myths of money is that you can figure out this investing thing later. It is BETTER for you to invest a minimal amount of money now than for you to put away a huge chunk of money in the future. Starting out with even $50 a month can change your entire financial trajectory. It doesn't take a lot of money but it does take a lot of time. If you are young and you have the time to start investing I urge you to do so. Your financial life could depend on it.