How to Invest Your Money: There is no secret, the younger you invest, the more important the investment period over your life. Due to the capitalization of interest via the mechanism of reinvestment of the fruits of savings, this results in an exponential increase in the latter.
Indeed, in terms of investment, the long-term plays in favor of your enrichment, but you still need to choose the investment solutions adapted to your situation and your young age. So, how to invest when you are young? What types of investments are suitable for young people?
Before addressing these questions, we will delve into the reasons why starting to invest when you are young is essential to building assets in line with your life plans.
What are the most suitable investments for young people?
When you are young, choosing the right investment vehicles can be decisive in building solid and lasting wealth.
Here is a comparative table of different investments suitable for young people, each presenting its advantages, disadvantages, and potential return. [How to Invest Your Money]
Why is it important to invest as young as possible?
As we said in the introduction, investing as young as possible allows you to increase the investment duration to maximize the capitalization of interest. In addition, the longer the investment period, the more you limit your risk of capital loss.
In short, investing when you are young allows you to prepare for your future and realize your various life projects (have a comfortable retirement, buy your main residence, etc.).
Compound interest and investment duration
Compound interest is a financial mechanism that allows you to generate interest from the interest earned. In other words, if your savings are appreciated annually based on interest and returns, these can be automatically reinvested to in turn generate interest.
In this sense, investing your money when you are young allows you to maximize the effect of compound interest thanks to a longer investment period. [How to Invest Your Money]
| Age | Amount of monthly payments | Annualized rate of return | Capital at 60 | Gain marginal |
| 22 | 500 | 6,00% | 864 350,75 € | 54 925,51 € |
| 23 | 500 | 6,00% | 809 425,23 € | 51 816,52 € |
| 24 | 500 | 6,00% | 757 608,71 € | 48 883,51 € |
| 25 | 500 | 6,00% | 708 725,20 € | 46 116,52 € |
| 26 | 500 | 6,00% | 662 608,68 € | 43 506,15 € |
| 27 | 500 | 6,00% | 619 102,53 € | 41 043,54 € |
| 28 | 500 | 6,00% | 578 058,99 € | 38 720,32 € |
| 29 | 500 | 6,00% | 539 338,67 € | 36 528,60 € |
| 30 | 500 | 6,00% | 502 810,06 € | 34 460,95 € |
| 31 | 500 | 6,00% | 468 349,12 € | 32 510,33 € |
| 32 | 500 | 6,00% | 435 838,79 € | 30 670,12 € |
| 33 | 500 | 6,00% | 405 168,67 € | 28 934,08 € |
| 34 | 500 | 6,00% | 376 234,59 € | 27 296,30 € |
| 35 | 500 | 6,00% | 348 938,30 € | 25 751,22 € |
| 36 | 500 | 6,00% | 323 187,07 € | 24 293,61 € |
| 37 | 500 | 6,00% | 298 893,46 € | 22 918,50 € |
| 38 | 500 | 6,00% | 275 974,97 € | 21 621,22 € |
| 39 | 500 | 6,00% | 254 353,74 € | 20 397,38 € |
| 40 | 500 | 6,00% | 233 956,36 € | 19 242,81 € |
| 41 | 500 | 6,00% | 214 713,55 € | 18 153,60 € |
| 42 | 500 | 6,00% | 196 559,95 € | 17 126,03 € |
| 43 | 500 | 6,00% | 179 433,92 € | 16 156,64 € |
| 44 | 500 | 6,00% | 163 277,28 € | 15 242,11 € |
| 45 | 500 | 6,00% | 148 035,17 € | 14 379,35 € |
| 46 | 500 | 6,00% | 133 655,82 € |
As you can see, making a payment of 500 euros per month on a savings product offering 6% per year offers you a larger capital at 60 when you start at 22 (€864,350.75) than when you put it in at 46 years old (€133,655.82). No surprises so far.
A long horizon to improve the risk-profitability couple
The other advantage of investing when you are young is the possibility of moving towards more profitable long-term investments to optimize your profitability/risk ratio. Indeed, it is commonly accepted that investing over the long term makes it possible to smooth out the effects of volatility in financial markets and to place the value of one’s investments on long-term upward trends.
In other words, if you invest young, you will be able to benefit from a significant rate of return (between 6 and 10% per year) without taking excessive risks of capital loss.
But be careful, this rule assumes that you have built a sufficiently diversified investment portfolio with a good risk management strategy and that you remain faithful to your strategy (avoid giving in to panic during stock market crashes, for example).
Goodvest advice: Goodvest ISR life insurance allows you to build a diversified portfolio invested in responsible and environmentally friendly financial assets. Thanks to our managed management solution, you benefit from a secure framework for investing by limiting your risk-taking while generating performance. [How to Invest Your Money]
Prepare your life plans and secure your future
Investing for the sake of investing doesn’t make sense. Putting money aside must at least serve a purpose. When you invest when you are young, the objective is often to prepare for future projects such as buying your main residence, preparing for the studies of your future children, buying a second home, preparing for retirement, generating additional income, etc.
In short, your only way to realize your projects as soon as possible is to invest as early as possible. But be careful not to sacrifice too much of the present moment. It seems important to find a fair balance between consumption and savings depending on the size of your income.