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ECONOMY | 03.27.2024

From saver to investor: five reasons to put money to work as soon as possible

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"Don't wait. The time will never be just right. " Thus is the universal life maxim of the American Napoleon Hill, a pioneering self-improvement and personal growth writer and author of the famous book Think and Get Rich. If we look for the perfect time to start something, we may end up never doing it. Over-analyzing information, cases, and outcomes can ultimately lead to paralysis, whether you're investing, starting a project, or making any type of major change.

If we apply this wisdom to the field of finance, it would sound something like this: the best time to start investing was yesterday and the second best time is today. In other words, the best time to start working on your financial planning and your objectives is now. The stock market is unpredictable in the short term, and numerous studies have shown that time on the market is more important than trying to time the market. In other words, the value of time can’t be underestimated, especially when it comes to investments and personal growth. Start as soon as your personal circumstances allow you to –we’ve already talked about rainy day funds– so that you can learn from experience and deal with uncertainty while reaching your long-term financial goals.

Because transitioning from being a saver to an investor is a crucial step for those looking to not only preserve their capital, but also to increase it over time. Because the real risk of not putting money to work and letting it sit under the mattress or in a non-interest-bearing checking account is the loss of purchasing power due to inflation. In the long term, keeping all your money in cash can cause your pocket to shrink, while investing in options that offer returns above the inflation rate can help you protect it and even make it grow.

Why should you start investing as soon as possible?

  1. Take advantage of the “power” of compound interest

Compound interest refers to earning interest on both the initial principal and any previously earned interest. Think of a snowball that gets bigger and bigger the longer it rolls. The same principle applies to your investment: this effect builds up over time, which means the earlier you start investing and the longer your money remains invested, the more time it has to grow through compound interest.

  1. Mitigate the impact of market volatility

Investing in the long-term allows you to weather market fluctuations. Markets can be volatile in the short term, but historically, they’ve tended to increase in value in the long term. Starting early gives your investment more time to bounce back from downturns and capitalize on growth periods.

  1. Healthy financial habits

Getting started on investing helps build your financial discipline and saving habits, so that you can keep calm during periods of market volatility and stick to your investment plan through regular contributions, for example, and always stay focused on the long term. This discipline and emotional control can lay the foundations for a life of sound financial decisions.

  1. Financial freedom

Investing can be a powerful tool for achieving your financial objectives, whether in the short, medium or long term. And there is a goal that, though it may sounds idealistic, can be achieved through well-planned investment: financial freedom. This means having enough money invested to live off the returns, giving you the freedom to make career and life decisions without being constrained by immediate financial needs.

  1. Diversification

Depending on a single source of income, such as a salary, can be risky: investment allows you to diversify your income sources through dividends, interest or capital gains, providing an additional layer of financial security. In addition, you can also diversify your exposure to different global markets and sectors, providing you with the opportunity to capitalize on growing economies and companies, regardless of your geographic location. In fact, this will be a key factor in reducing risk in your portfolio.

Is your profile very conservative? The key is striking a balance between security and potential growth: starting with small steps and educating yourself on investment options can make the process less intimidating and more rewarding in the long term. Also, keep in mind that you don’t need to start investing in high-risk options. There are options for obtaining better returns than a traditional savings account, such as money market funds or guaranteed funds.

Making the change from being a saver to an investor is a crucial step towards long-term security. Starting early, educating yourself, and following a well-thought-out investment strategy can make a huge difference in your financial future. And that’s why finding the perfect timing isn’t the most important issue, but rather the time itself. Starting as soon as possible, even with small amounts, can make a significant impact. From there, remember that your financial situation and objectives will change over time, as will the economic playing field. For this reason, regularly reviewing and adjusting your investment portfolio, strategy, or even your objectives will help ensure they stay aligned with your long-term goals and risk tolerance.

And if at any point you feel unsure about where to begin or how to tackle the numerous options, consulting with a financial expert can always be a wise first step.

MAPFRE has a financial advisory service, MAPFRE Gestión Patrimonial, which currently has 10 offices throughout Spain. In its new Strategic Plan 2024-2026, it aims to surpass 2 billion euros in assets and increase its number of offices to 16.