THE IMPORTANCE OF INVESTING EARLY AND OFTEN

By Grant Bailey and the Sick Economist 

Chances are, if you’re young and know anyone who invests in the stock market, you’ve probably been told to “invest early.” That said, what’s also likely is that you’ve taken that to heart; among Gen Z, 18-25 year-olds, 56% hold at least some form of investment, meaning more than half of Gen Z seems to understand the significance of investing early, right? It’s actually much less cut-and-dry than that. What this broad statement says is that 44% of Gen Z is not investing, so it would then be fair to assume a large amount of Gen Z is not legitimately familiar with the importance of investing early. Let’s address that issue first.

Now, let’s say you want the ~10% average annual returns from the market, but you don’t want to do any research into what to invest in, so you just throw $1000 into the S&P500 and add a monthly contribution of $50. In ten years, you would have over $13,000, assuming an annual average of 10% growth. If you were to only put in $100 instead of $1000 at the start, you’d still end up with over $10,000 over that same amount of time. 

But let’s compare investing with college expenses. The average cost of college is well above $30,000 per year, but for the sake of making a point, we’ll be generous and keep it on the lower end of the average at $30,000. Since most people are attending college for the full 4 years at least, they’ll end up paying $120,000 total for college at the very least. What’s interesting here is that, if you were to put that $120,000 into the market and never add anything to it, you would have well over $300,000 over the course of the next decade. 

Take it a step further now. The average cost of attending a private college has differing estimates everywhere, but appears to be in the range of $60,000, meaning students are paying $240,000 over four years. If you were to invest $240,000 into the market, assuming a 10% average annual return over the next decade, you’d have over $650,000 without adding any outside cash to your initial investment. Crazy, right? This is why people call compounding gains and interest the 8th wonder of the world.

But we need to view this in a larger scope. What does $10,000 turn into long-term, in 30 years? Let’s say you go to a very affordable college, which saves you extra money, and out of that extra money, you put $10,000 into the stock market, and you are smart with what you buy and end up returning 10% in an average year. After 30 years, when you’re a middle-aged individual with a stable job, a loving wife, and children, you will have over $200,000 rather than $10,000. This is the long-term effect of compounding. 50 years? Nearly $1.5 million. 

Choose Wisely

Through the lens of these analyses, it’s easy to see why people are always advised to invest early. Sure, 56% of Gen Z invests, but it might also be important to see exactly what they’re invested in, right? What’s shocking is that 55% of this group is invested in crypto, 41% is invested in individual stocks, and 35% is invested in some sort of mutual fund. So, Gen Z is more invested in crypto than the stock market. What makes this problematic?

Well, the real reason people are supposed to invest early is to at least come close to some sort of guarantor of continuous growth over extended periods of time. Unfortunately, that continuous growth is almost completely nonexistent in the realm of crypto. When people choose stocks to buy, there is fundamental qualitative and quantitative data that can be analyzed and interpreted relative to each company. Conversely, when people buy crypto, it can only be analyzed based on hype and limited qualitative data. This makes it extremely difficult to invest heavily in crypto while maintaining any sense of clarity. So with that said, how do you do a good job investing in the stock market?

The very least you could do is look at analyst forecasts for whatever company’s shares you’re considering. Of course, these analysts are inaccurate more often than not, but they give you a good idea of where the sentiment is at, and good sentiment is hardly ever a bad thing. The most important thing you could do in the stock market, however, is to understand these most basic terms: Debt-to-equity ratio (Shows how much debt a company has relative to its value), price-to-earnings ratio (Compares a company’s earnings to its value), price-to-free-cash-flow ratio (Compares a company’s cash flow health to its value), dividend payout ratio (Determines how sustainable a company’s dividend is), and the various margins associated with stocks like profit margin, operating margin, or gross margin (compares revenue or profit with differing areas of expenses). When you understand these terms and what they indicate under different circumstances, what you can do then is compare that data with other competitors within that company’s respective industry. By integrating this sort of rigid procedure, you can do just a fine job investing in the stock market. 

With that in mind, after understanding the quantitative terms previously mentioned, what you must remember is to find out what is causing quantitative data to look a certain way. This is what makes the stock-picking process much more subjective and free-thinking, and less rigid. What caused X company’s price-to-earnings ratio to be so high, or what is causing Y company’s operating margin to be so low? Is this justified, or is that a misinterpretation? This relates more to qualitative data analysis, identifying the real features of a business and determining how justifiable the quantitative data is based on the qualities of that business. What also needs to be said is that there is extra value to be found in investing in your specific circle of competence. For example, if you are a chemical engineer, maybe focus your investing philosophy around companies in your field of focus, such as Zimmer Biomet. This reinforces confidence in your investment choices, which gives you the willpower to hold through difficult periods and weather storms.

A Penny Saved, Will Eventually Equal Many Pennies Earned…..

Obviously, if people don’t understand how to save money, they can’t ever take advantage of the stock market. So, how do you be reasonable in your approach to saving? The biggest rule here is to be careful about your big-ticket expenses. If you’re a middle-class person in 2026, do you really need to buy a 2026 edition car? I’m sure it would be a pretty sweet ride, but the common theme here in saving and investing is that you should be occasionally sacrificing cool things now for the purpose of having the availability to do way cooler things in the future, in layman’s terms. If you were to buy a $50,000 car, is it actually going to cost you $50,000? Truthfully, it will likely cost you quite a bit more. Outside of the implications of interest gained on your car payments, you could still have saved at least $30,000 by buying an older, but still perfectly functional and long-lasting car. That $30,000 you would save, if you were to place it into the stock market, would turn into well over $200,000 2 decades later. That’s just how important it is to be reasonable with your spending. This same logic can be applied to other high-ticket items, like a house or even a boat. The overarching point here is that, as long as you maintain some sort of conservatism with your costliest expenses, you can still go out and have fun every once in a while, all while still saving a considerable amount of money. 

An old saying goes….”Youth is wasted on the young.”  Hopefully the calculations presented above will help you realize that, although young people may be poor in financial capital, they are rich in time. And with some discipline and commitment, and a little good luck, they should have no trouble converting that time into tangible wealth over the long run.