If it isn’t the question everyone wants answered: “How do I know when to start investing?” The answer is simple: you should start investing right now. “But I don’t have enough money to invest!” people often reply. Fret not, because even a small amount set aside regularly is a good starting point, thanks to the power of compound interest.
... but what exactly is compound interest? We'll get to that in a minute.
The first thing you need to do to maximise the potential of compound interest is setting a period for your investment goals. For example, you could set a period of 30 years to save for retirement; you could set a period of 10 years to buy your first house; or you could set a period of three years to have the wedding of your dreams. It really is up to you.
What’s important to understand here is everybody has their own specific goals and periods. Different folks could set different timeframes for the same investments—and it’s perfectly fine. No matter what your goals are and when you want to achieve them, taking advantage of compound interest makes all the difference in your investments.
Now that we’ve figured out an investment period, let’s understand compound interest. In very simple terms, compounding your interest means you’re earning returns on your returns. You’re taking the money you’ve earned from your investment and reinvesting it into the same plan.
Here’s an example based on an important goal: Say you want to plan for retirement, and you feel comfortable setting aside RM1,000 per month for 30 years. Even if you choose an investment product with a modest returns rate of 5% per year, you’ll be able to accumulate a total RM832,258 by the end of your plan.
Another common question we hear a lot in our line of work is whether we should pay off all of our debts before starting an investment plan. It’s a good question, and the answer is, well, a bit complicated.
Firstly, it’s important to understand that not all debt is created equally. Some debt is perfectly fine to have while you invest; the best example of this would be a home loan, as their interest costs are usually much cheaper than the returns you’ll earn from the property.
On the other hand, setting aside funds toward repaying expensive debts—such as high-interest credit card bills—could leave you financially better off, even if it means delaying your efforts to save and invest. It makes no sense to earn 10% returns from your investments while paying 18% interest on a credit card debt.
Expensive debts like credit card bills are strong examples of reverse compound interest working against you. If it means working towards the bigger picture of your investment strategy, then paying them off is a good idea.
If you've gotten this far along in the article, you might still be wondering if now is the best time to begin investing, especially as the entire world is gradually, slowly coming out of the woods due to the global pandemic––and the simple answer, again, is yes, now.
Many Malaysians, especially young adults who’ve just started working, assume they don’t have enough money to become investors. We’re here to tell you: There are plenty of ways to dip your toe into the markets, and one of the easiest and best ways to invest well no matter how much money you have is to utilise a robo-advisor like Akru.
Akru can make your money work harder for you by investing in a globally diversified portfolio. No prior investment experience is required, and setting up an account is quick and easy. We also don’t charge you an arm and a leg, so the sooner you start investing the more interest you can compound—or accrue, to use our namesake.
Whether you’re able to set aside RM50 or RM500 per month; whether your investment period is five years or 50; Akru can recommend an investment portfolio that’s tailor-made for you.