The short answer to this question is a definite no — it's never too late to begin a savings and investment plan.
Even if you're in your 40s (or older) and haven't put together a single dollar towards investing, my advice would be to start an investment plan anyway and enjoy the benefits of compounding returns over the next few decades at least.
You see, according to the Australian Institute of Health and Welfare, life expectancy is increasing and children born during the 2013-15 period can expect to live around 33 or 34 years longer than people born between 1881 and 1890!
A 45-year-old man and woman today is expected, on average, to live to 82 and 85 respectively so there's plenty of time still to benefit from the miracle of compounding returns (those years will come faster than you expect too).
Of course, it's all well and good to say everyone should invest, and it's all subject to being able to find the spare cash to put towards investing in the first place, but consider the scenario below:
- A 45 year old man and woman individually start an investment plan with $1,000 up front and contributes $100 per month earning, on average, 7% per annum (compounded annually). Fortunately, they do this consistently each month for 20 years and so, at age 65, both investors end up with a before-tax sum of $54,910
- Now, consider that each of the above investors stops contributing to the plan at age 65 but lets the investment ride until their life expectancy. The sums above, growing at a conservative average rate of 7% pa over the next 17 and 22 years respectively, would be worth approximately $173,450 for men and $212,480 for women
The reality is though, you may need to draw down on your investment in retirement (if there's no superannuation or age pension to cover you) and you won't all contribute this much, or for such a consistent time frame. But that's the point of this article. I'm hoping to bring to your attention the opportunities that are available to everyone regardless of age, and the enormous effect that compounding returns can have on initially-modest sums.
Of course, I've deliberately used a conservative rate of return which could be achieved via investment in the sharemarket, but it's nice to know that the historical average (including the reinvestment of dividends) has been approximately 9% per annum over the last 20 years and closer to 10% per annum since 1970 (source: www.vanguard.com.au).
Where do I start?
A good place to begin are broad-based exchange traded funds (ETFs) such as the iShares Global Consumer Staples ETF and the iShares Core S&P 500 ETF — known as ISGLCOSTP CDI 1:1 (ASX:IXI) and ISCS&P500 CDI 1:1 (ASX: IVV) respectively. With each of these ETFs you'll be able to expose your investment to broad-based portfolios of global consumer brand name companies (such as Nestle, Unilever & Anheuser Busch Inbev for example) on the one hand, and the top 500 companies in the USA by market capitalisation on the other.
With these core investments in place, you can also consider companies like Cochlear Limited (ASX: COH), Altium Limited (ASX: ALU) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which, combined, offer a good deal of exposure to overseas earnings and tax-effective income along the way.
Foolish takeaway
It's often been said that the best time to start investing was in the past, but that the next best time is today. Combining time and a regular savings plan can still provide good returns if you make the conscious decision to start putting your money to work, no matter your age.
To help you get started on your investment journey, as well as the investment ideas mentioned above, we've also put together a report that reveals another three top ideas that you can obtain by clicking on the link below.
