Millennials: Investing Too Early – Yes, I Said It

Is it possible to invest too early? Contrary to popular belief, the answer is – yes, sort of. Ask yourself, “what’s more important – protecting my ability to save or saving what I already have?”. What did you answer?

You may be someone who already takes zero (or very little) risks in life. You never drive without a seatbelt or ride a bike without a helmet, or spend the money you make with little planning for the future. If that’s you – this conversation will come easy. And, you may be the opposite and this concept may give you pause. All’s well! The fact is, we mostly make decisions around finances the same way, emotionally.

Investing too early is detrimental.

When it comes to the question of when to invest, we often think of lost opportunity and stories of friends who have made gains in the stock market and then the sense of eagerness consumes – as the time for potential earning burns away.

This is emotion at play. Thinking rationally (easy, when there is no money to win or lose) provides a new context. When asked if it is worse to invest too early or too late, many will vote “too late” – because the earlier you invest, the higher your returns will be since you have a longer investing horizon. But, investing too early can be detrimental. Yes, I said it.

How can investing too early even be possible?

Every investment has a horizon (or a timeline) – think, “what am I investing for?”. This timeline may not be exact, although, it’s projected. If you just finished university, for example, and you’re working full time and saving, you may be ready to invest. So, how can it be too early? Well, don’t count your chickens before they hatch! Have you built-up your emergency fund? Do you have income protection in place? If you had $200 per month to save, you’d be in a better position using that to build an emergency fund of 3 to 6 months of your current income so that you don’t have to dip into your savings for that next emergency, which as we all know, is not a matter of if but when.

Build a solid foundation, not a house of cards.

Look, the fact is, you’ve got a 33% chance of being disabled for more than 90 days during your working years, and a 50% chance of being diagnosed with a critical illness, like cancer, in your lifetime. The statistics are staggering.

So, why does this matter? Well, if you’re not working, you’re not making money. Are you saving? Probably not. So, what you’ve saved is at risk (since you’ll have to dip in to deal with your day-to-day life) and what you’re saving for will be at risk (since you won’t be contributing while you’re not working).

See? It’s off. You’ve got to back up your investments before (or while) you start investing by creating an income protection plan and an emergency fund.

There are many things that can affect your ability to save (and invest). Unexpected repairs for your car, losing your job and still needing to pay for expenses, you or someone in your family becoming sick or injured and needing care, etcetera, etcetera. All of these events can be hard to predict and will almost certainly drain your investments.

“I’m ready to invest, learn about the markets and make some returns on my money”, you say? You’re excited! Good! Keep that excitement up and take this advice – create an emergency fund and implement an income protection strategy. You may hesitate. If creating wealth is your goal and you make your income from one active source that requires your input (called a J.O.B), then protect that source of income and ask yourself “what happens if that flow of income stops?”.

Share the wealth.

This too applies if, for instance, you’re planning on buying a house in the next year. It would not make sense to put the money you’ve saved for a down payment in a risky investment – chasing quick gains. Unless you required the growth to meet your downpayment needs, you’d be better to be in a guaranteed investment, holding for the right time to purchase that home.

If you have $200 a month to save, start by protecting your income (it doesn’t cost very much to offset your risk) and use the rest to build your emergency fund. As soon as that’s done – you’ll know the $200 you’re intent on saving every month will actually have a chance at sticking.

Underestimating the importance of planning for and protecting your investment is rolling the dice. Build your financial foundation and infrastructure then the house you designed won’t collapse. Before multiplying what you already, plan and then get ready, because your bases are covered.

For related topics, check out the posts below.


What you need to know:

  • The concepts offered are based on information available at the time of writing, it is subject to change.
  • Coverage is not guaranteed for everyone – this coverage is underwritten and based on an applicant’s age, sex, smoking status, family history, medical history and a slew of other pertinent information.
  • As always, seek advice from your financial professional, accountant and tax lawyer.
  • For more information regarding the income protection strategies, reach out to our office – we are elated at the opportunity to offer a no-obligation consultation.

The information in this article is derived from various sources. We do our best to ensure the sources are both accurate and reliable and – information changes. As such, we make no guarantee or warranty to the completeness of the information presented here or it’s application to your personal circumstances. Before acting on any of the above concepts, reach out and get a personalized look at the applicability of this and other insurance strategies for your unique personal or corporate circumstances.

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