Sometimes we just don’t have a lot to spare, we have other commitments perhaps or need more time to do things bigger and better. But we also want to do something because we know deep down that something is always better than nothing.
It’s then that we make a choice - we either wait a while or we go ahead no matter how small it seems.
Some of us are perfectionists and will delay doing anything until we think we are ready - however, if we look at passive investing especially, the greatest weapon we have there is time. We’ll usually benefit from starting sooner with less than not starting until later.
Waiting for a 'while can be dangerous - I’ve seen a ‘while’ turn from months to years to never.
General George S. Patton once said that one should "Never wait for a perfect plan. Take your best shot and make it perfect for the situation." And if you’ve read The Art of War you’ll be familiar with the phrase "Opportunities multiply as they are seized."
All forms of savings are a form of ‘paying your future self’ - and the same goes for investing those savings. Investing is ultimately seeking reward for delayed gratification. It’s bargaining with the future.
Imagine you’re a bank or a friend who can help lend money to someone - would you be more comfortable lending to someone who saves a little each month no matter how small, or someone who doesn’t care because the sums are ‘too small’ and so never saves or invests anything?
Given we can get access to lower-cost ETFs and Index funds, insurance and in a few cases, degrees of capital protection these days on ‘smaller’ sums, it may look to an outsider as if we have no real excuse not to be doing something.
Whether you like to do things yourself or use a dedicated automated savings vehicle, you’re able to do so even with very small sums (even $50 a week can get you into a reputable offshore savings vehicle with a measure of downside protection in most places today)
Here are two reasons why small, regular savings make a lot of sense:
A monthly commitment well within your budget will not be noticed - giving you no pressure to meet it. And if it’s so small that you don’t notice it going out after a few months you can increase it accordingly.
Cost Averaging - You’ll not need to worry about timing markets - just pick a few Index Funds and off you go! You’ll smooth volatility and have less concern about short-term movements as time goes on.
Regular savings form the basis of most goal-based investing such as pension planning or saving for children’s education fees. It’s a lot easier to park away a small sum and compound the interest a decade or more before you need it than to be a couple of years away from a goal and realise you’ll have to sell something, cut back or borrow to meet it.
Even without a specific goal, few people would turn down extra money in the future. You’d be surprised to know even ultra-wealthy people save and invest regularly. That’s one of the biggest reasons they can preserve their wealth.
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