The top challenge to overcome in the early years of investing

August 9, 2023

When you first start investing, you’re usually filled with excitement and optimism. Having learnt about the potential offered by the stock market for wealth accumulation, you are keen to put the theory into practice.

Sadly, that initial excitement can wane quickly. Despite your regular contributions, slow growth or losses can dampen your mood and even have you contemplating whether investing is worth it.

It’s easy at this point in your journey to become disheartened or distracted by new investment strategies. But there’s an important ingredient for success that you’d be missing out on if you were to abandon your plan at this point: time.  

Time is one of the most important ingredients to successful investing

One of the most famous and successful investors in the world is Warren Buffett. His success in the investment world is often seen as an example of the benefits of compounding, but it’s important to remember that Buffett started investing at the age of 10.

Now in his 90s, Buffett’s investments have had an 80-year window within which to generate and benefit from compound returns. This is far longer than the average investor will usually hold investments for. Many don’t start investing before their mid-20s, with a view to using their portfolio to fund a retirement starting in their 60s.

So, while sound investment decisions have certainly been important for Buffett’s success, the fact that those investments have had three-quarters of a century to grow and compound has certainly played a key role too.

There are no shortcuts to long-term, sustainable wealth accumulation

The crucial role that time plays in the success of your investment strategy means it can’t be replaced, cheated, or forgotten. Sadly, when you’re first starting out on your investing career, time really is the missing ingredient.

A portfolio with 30 years’ worth of regular deposits behind it is likely to be in a much better position to benefit from compounding than one that has only had 10 years’ worth of contributions. This is because it has had longer to ride out the peaks and troughs that often come with investing in the stock market.

Inevitably, though, every investor must push through those slow early years if they’re to grow their portfolio and have the opportunity to benefit from compounding. It’s an important part of your journey, teaching you the lessons you’ll rely on throughout your investing career.

Patience and consistency can help your portfolio to grow more quickly

While there are no shortcuts to the opportunity presented by compound returns, you can give your portfolio the potential to grow more quickly and more sustainably.

Contributing consistently and staying the course with your strategy will stand you in good stead to benefit from compound returns in the long term. Increasing contributions is one way to help your balance grow further, potentially leading to larger compound returns in the future. Keep in mind, though, that this is not guaranteed, and you could get back less than you invested.

The investors who are more likely to see tangible results from their efforts are those who resist the distractions that are rife in this early period of investing. Instead, they trust the process and diligently contribute what they can afford on a regular basis.  

If you’re still in that early phase of investing, keep in mind the power of compounding and how helpful it has been for investors like Warren Buffett. His story serves as a reminder that investing success is often worth the wait.

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