Starting to invest early in life can provide you with experience that could lead to better investment outcomes, writes Peter Watson.
We recommend you start investing as early in life as possible. This could apply to parents who establish an investment fund for their children.
Investors should be encouraged to take a long-term approach. Meaning, don’t just interpret the return you got last year as what will happen next.
Most years, the returns are either much higher or lower than what you might have predicted. Understanding that means you understand the theory of how investments work.
But there is a problem.
Understanding theory often does not work unless you are an experienced investor. A rookie investor is someone who has just started to invest.
Despite understanding the need to take a long-term approach when actual returns are so volatile, both up and down, it is often difficult not to overreact.
Experience teaches you that stock markets can give you extremely high returns one year and extremely low returns the next.
That’s just how it works.
That’s good in theory, but in reality, if you haven’t experienced actual stock market volatility, it is harder to accept.
If you have had many years of owning investments, you will understand that extreme market volatility, both up and down, is normal.
It does not matter that your initial investment was small; you are gaining valuable experience.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com.
