By Moshe Wiesenberg
There’s a famous saying regarding the stock market: “It’s not about timing the market, it’s about time in the market.” Many people believe they should wait for the market to crash before investing and only invest when prices are down. However, research shows that trying to time the market often causes investors to miss long-term gains. This idea is especially important for young people as starting earlier gives their money more time to grow and time is far more valuable than waiting for that “perfect” moment. College students should begin investing as soon as possible because time is their greatest financial advantage.
Take, for example, the concept of compound interest. If you invest the $2,000 you earned from working at a summer camp last year, and it earns 10% over the next year (around the long-term average annual return of the S&P 500), you’ll now have $2,200. The next year, if you again earn 10%, you’ll now have $2,420. That’s the key to compound interest: even with the same percentage return each year, the dollar amount you earn will keep growing because your previous gains are also growing. By year 10, that original $2,000 becomes almost $5,200. By year 20? Nearly $12,500.
Investing is now easier than ever. With apps like Robinhood, you can invest quickly and with very little money to start. A simple $2,000 can give you experience in the market. Not only can you begin looking at market trends, but investing also teaches an important skill: patience. You learn to see how stocks improve over long periods of time, instead of focusing on short-term gains.
Many college students are still dependent on their parents to help pay for their undergraduate degrees. This makes college an even better time to start investing. Market volatility is not as scary when you don’t need the money right away. A young investor can ride out recessions, bear markets and temporary drops without worrying about losing money needed in the near future.
Warren Buffett once said, “The stock market is a device for transferring money from the impatient to the patient.” Over time, short-term traders often underperform when compared to patient investors who steadily build up gains. College students may not be able to predict where the market will go at any specific point, but in the long term, it is sure to go up. Building wealth isn’t about timing the perfect entry or exit; it’s about allowing your investments to work through both good times and bad.
Young people, especially college students, should start investing now. Avoid chasing short-term gains and embrace patience, because it’s not about timing the market; it’s about time in the market. You can’t buy the bottom and sell the top every time. However, you can make good investments and let years in the market provide you with real gains. If the average adult started investing just $5,000 a year at age 25, they could retire on that alone. Earning an average 9% return over 45 years, they would have over $2.5 million by age 65. That is the power of early investment.
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