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Why Being Young is the Best Thing for Investing

Being young has many advantages: you have the energy to stay awake all night only to sleep at 4am in the morning and wake up at seven; you eat all you can and still weigh the same; you can play football all day long and not wake up the next day feeling like your legs are falling apart.

These are just some of the common and, perhaps, widely-acknowledged physical advantages that young people have over the more “experienced” members of society.  But, it might be unknown to some that the greatest advantage a young person has over someone older is found in the field of investing.

In fact, if you are a teenager, you possess an advantage that could put you in a better position in investing than say, billionaire investor Warren Buffett. Here’s why.

Time is on your side

Compounding is the eighth wonder of the world, but time is the necessary ingredient to let it work its magic. It’s also what has helped shares like United Overseas Bank (SGX: U11) and Jardine Cycle & Carriage (SGX: C07) achieve profits in excess of a 1,000% over the past 22 years.

Envision a period of 40 to 50 years ahead of you for compounding to work on your investments.

Technical know-how

Generally, the younger population will have better knowledge on how to operate computers and navigate the Internet. Imagine having the ability to search almost instantly for investing-information such as annual reports, forums, and analyst’s reports instead of being forced to wait for printed copies to arrive at your mailbox. The amount of data at the tip of one’s fingertips now was simply unimaginable 20 years ago.

Earning power

When you are just at the start of your career, the future of your earning power is an open book. Since your ability to earn is correlated to your future savings and investments, you have the ability to increase your earning power to a degree limited by only your beliefs. That’s especially so if you are young as you have decades ahead of you before retirement sets in.

Compared to a person nearing retirement age, they’re likely to have a much smaller ability to increase their power to earn through savings and investments as they’d have much lesser time to effect any meaningful change in those areas.

Learning capacity

Investing is not just about finding good opportunities for investment; it is also about a constant upgrading of your knowledge-base. Due to this, being young allows you to be in a better position to absorb new information due simply to having time on your side.

In addition, having more time to make mistakes and learn gives you more chances to refine your investing skills.

Foolish Summary

Although saving and investing for retirement might not be the most urgent objective in a young person’s life, for those who plan early, they will very likely be able to enjoy a huge difference in their quality of life in the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.

See all posts by Stanley Lim, CFA


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