# How Young is too Young to Invest

There is no such thing as being too young to invest. If you have spare money lying around at a young age I highly encourage you to invest. Many children are exposed to investing by their parents at a young age by investing in stocks that children are interested in like Disney. This is a wonderful idea and a great way to begin teaching children the value and importance of investing.

More importantly, the younger you are when you begin to invest, the more money you will have when you are older. Thanks to the magic of compounding rates of return, even a small amount of money can grow in to a huge sum over a long period of time. Basically, compounding means that you earn money on the money you earn, not just on your initial investment. In other words, if you start with \$100 and earn 10% for one year, you would have made \$10 at the end of one year. If you earned another 10% the next year you would have made \$11 because your balance is now \$110 (not only \$100). If you keep adding this up over time, this makes a dramatic difference.

Consider the following example: If you did buy \$100 of Disney stock for yourself at the age of 15 (or for your kid when he/she was 15) and it earned 10% a year for 50 years until that child turned 65, he/she would end up with \$11,739 at the end of that period. However, if you waited until age 18 to buy \$100 of Disney, the value at age 65 would only be \$8,819. That is a difference of \$2,920 – and you only started with \$100.

The reason the difference is so dramatic (after all the difference is over 29 times the \$100 you started with) is because of the three extra years at the beginning. The fact is that you can never get those three extra years back. Even if you waited another three years until you were age 68, the kid starting at age 15 would still have three extra years on the kid starting at age 18.

To further illustrate the power of compound rates of return, consider you invested the \$100 above at age 12 instead of age 15. Now you have another three years at the beginning during which your investment is compounding. Now how much money do you have at age 65 (assuming the same 10% return per year) – a whopping \$15,624! That is \$3,885 more than you would have if you waited until age 15 to begin investing.

These examples can go on and on, but I think you get the point. Namely, the power of compounding rates of return is huge and the younger you begin investing the longer you can take advantage of this power.