A few weeks ago, an 8th grader in Novato, Sean Nolan, wrote to us to ask questions about investments. He was tasked with an assignment to write an essay on the importance of investing in your 20's, rather than waiting until your 30's, or later. After asking some astute questions, he went to work. This is the nicely written and thoughtful product of his hard work:
*For compliance and regulatory purposes, a few words have been altered to meet the compliance requirements.
Consider Investing When You’re Young
Every month I turn on my iPad and go into the stocks app to see if the stocks I have invested in have made me money. Usually [a specific stock I chose to invest in] makes me about five dollars a month. So, if investing in stocks [may make] your money keep growing, why do most people wait until they are in their 30s and 40s to invest when investing in your 20s [could potentially] make you almost twice as much money?
My interest in the stock market started when my grandpa gave me money to buy stocks because he wanted me to have an interest in investing. I bought one share of [a stock I liked] because I knew that [a certain product] was about to be released. I also bought one share of [another company I liked] because they own a lot of successful products. My investment in these companies increased in value by 58% in about a year and a half, which showed me how stocks could make my money grow. This led me to believe that I should invest in stocks while I am younger rather than waiting until I’m older.
“The longer you're invested, the longer compounding has a chance to make a positive impact on the growth of your investment. If you invest $100 in a stock that pays a 5% dividend, you'll receive a dividend payment of $5, making your new total investment value $105. The next 5% dividend payment will be based on your $105 investment, resulting in a dividend payment of $5.25,” said Scott Stanley the Founder of Pharos Wealth Management in Novato California. Stanley also went on to say “For example: If you invest $10,000 at age 20 with an average investment return of 9% per year, by the time you’re 60 years old, you’ll have $314,095 but if you invest the same amount of money with the same yearly return at age 30 you will only make $132,677.”
According to the article in the New York times called “The Young Persons Guide to Investing,” written by Tara Siegel Bernard, published on February 10th, 2020, “Investing sooner rather than later pays off. An individual who begins investing in their twenties rather than their thirties will likely end up with a retirement account balance that is nearly twice the size.”
In conclusion, my experiment in investing has showed me that investing in the stock market [when you are younger can help build wealth.]
-Written by Sean Nolan
Thank you for your inspirational interest in the world of finance, Sean! You have a bright future.