4 Reasons Millennials Can Benefit From Investing Early

4 Reasons Millennials Can Benefit From Investing Early

For millennials—a term used to describe people born between 1981 and 1996—investing isn’t always at the top of the financial to-do list.

There are student loans to pay off, high rent and housing prices to contend with, and stagnant salaries that are making saving and investing more difficult than ever, especially for young South Africans.

But in spite of all that, millennials tend to be good savers, at least compared to other generations. For example, more than 70% of Millennials have started saving for retirement, according to industry data.

Millennials still struggle with investing, however. Many might feel that they don’t know enough about the market, or that they can’t afford to invest. Additionally, some simply don’t feel ready to put their money in the market, or that investing is too risky.

While those are legitimate concerns, investing can be a financial boon, despite the associated risks. If you’re a millennial and are still on the fence about investing, here are a few reasons why you may want to consider investing sooner rather than later.

1. When you invest at a younger age, time is on your side.

One big advantage millennials and younger generations have compared to older generations is that they have more time to accumulate wealth. They can maximise returns through a process called compounding, a way to potentially increase your savings, just by staying invested in the market.

Investments can also earn investors dividends, or small cash payouts, which can further grow your money. And, of course, investments tend to (but don’t always) appreciate.

2. Investing puts your money to work.

Instead of allowing your money to sit in a bank account and slowly be eaten away by inflation,investing can earn you a return, effectively putting your money to work.

Investing does have risks, but when you buy stocks, there’s a chance that the companies you’re investing in will grow—meaning that your shares can increase in value. Conversely, money that sits in a savings account, uninvested, is almost certain to lose value over time due to inflation, or a creeping higher cost of goods and services.

3. Investing can help you reach your financial goals, such as retirement, sooner.

If your money is growing or earning you a return (because it’s been invested!), it’s going to help you reach your financial goals faster.

Perhaps the most common financial goal is retirement. Many financial experts recommend setting aside between 10% and 15% of your gross salary to save for retirement, but most people don’t come close to that. In the first 10X Retirement Reality Report (10XRRR) – the findings of a survey of more than 11-million South Africans – indicates that 46% of people have a profound lack of trust in the retirement industry, while 41% people have made no provision for retirement at all.

The poll further highlights some worrying trends across within South African demographics.

  • 62% don’t have any form of retirement plan or have little understanding of their existing policy
  • 53% don’t know how much their pension is worth
  • 62% lack trust and confidence when it comes to investing money
  • Less than 35% of black respondents have a pension or provident fund
  • Less than 20% of black respondents have a retirement annuity
  • More than 40% of women across all demographics have no investments or savings in any form

Without compounding, dividends, and annual growth, reaching goals such as retirement may prove to be more difficult or time-consuming.

4. You can save money on taxes

Your investment contributions in a Retirement Annuity are tax deductible within limits, which means money you would have paid to SARS can now grow in your retirement annuity. Investment returns also do not attract any tax, making your money grow faster than in most other investment vehicles.

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