Why you should build an investment portfolio when you're young

There are lots of reasons to put off starting an investment portfolio. Perhaps you’ve decided you’re only young once, so you might as well spend all your disposable income right now. You could be waiting until you earn more money. You might be worried about the risk of losing your money – after all, investments can go down as well as up and you might not get back the capital you put in. Or is it simply that you don’t know where to start, and you’re waiting for the right opportunity or investment expert to come along and tell you what to do?

Whatever your reasons, we believe the sooner you take your first steps, the better off you’ll be in the long term. So put aside those doubts – today’s the day to take that first step. And if you’re still unsure, here are six good reasons why you should start investing now:

People sometimes think they don’t have enough spare cash to start investing. The reality is that you can start investing with relatively small sums, and that any money you invest early on will increase thanks to the power of compound interest (more on that later). Even a small regular amount can increase substantially if left to grow over time.

Getting into the habit of putting aside a regular amount every month, perhaps a percentage of your earnings, is a great way to develop financial discipline – a skill that should stay with you for the rest of your life. As your earnings grow, you can gradually increase the percentage, without noticing you’re losing disposable income.

We live in a consumer world – brands have worked out how to part us from our money, by constantly tempting us with must-have clothes, cars, luxury holidays and fantastic life experiences that we simply can’t do without. While buying new things delivers instant gratification, once in your possession, their appeal begins to wane, and it’s time to buy something else.

Setting up an investment portfolio, and diverting money from your bank account every month, lets you take control over your finances and helps you resist the urge to spend. Instead, you can give yourself the long-term satisfaction of watching your money grow, allowing you to spend it on the things that really matter.

How do you feel about taking risks? Are you a naturally cautious person, or are you comfortable taking more risk in the pursuit of higher rewards? Risk and reward are part and parcel of investing and you need to be clear about the level of risk you feel most comfortable with when it comes to your money, as well as the level of risk you can afford to take without impacting your lifestyle.

Before you start investing, speak to a professional financial planner. Together, you can discuss your current situation and future goals, exploring exactly what you want to do with your money and when. As part of this process, they will ask a number of probing questions to determine the level of risk you’re prepared – and can afford – to take. Once they have a clear picture of your goals, circumstances and finances, they can recommend the most appropriate investment strategy.

Clearly, younger investors have time on their side when it comes to building up a pot of money. A younger investor who has 30 years to grow their investment might be happy to take a greater risk with their money, because their investment has more time to recover from market downturns. An older investor with a shorter investment timeframe may feel more comfortable putting their money into less risky assets albeit potentially having a lower return than their more adventurous counterpart.

One of the main benefits of starting an investment portfolio early is that it benefits from ‘compounding’. As your investment increases in value over time (subject to the usual market ups and downs of course), you can reinvest your gains, which then also grow in value. Compounding is like rolling a snowball down a snow-covered hill… the longer it rolls, the bigger it gets.

Building up an investment portfolio will give you the luxury of choice. You can choose to build an extension on your house, because you have the money invested and don’t need to take on any debt. You have the choice to send your children to private school because you started investing before they were born. Or you may decide to retire early because you built up a big enough nest egg over many years.

Saving for retirement in your 20s or 30s rather than leaving it until your 40s or 50s could bring your retirement even closer. Investing a smaller monthly amount over many years might mean sacrificing the occasional trip abroad or everyday luxuries, but you may find it preferable to having to put aside more of your disposable income late in life to create a similar-sized pot.

Whatever your long-term plans, investing can help you create that financial freedom, and there’s no better time to start than right now.