Starting with a Baby
I started teaching my baby to read when she was 1 year old. We used the look say method only she never said the words as she wasn't talking - I just kept reading them to her. By age two she was sight reading a large number of words and by three years of age had started reading beginner readers. At this stage I started teaching her some phonics and the phonics went a lot quicker than I had expected. I think in some ways it is easier to teach phonics to children who already understand that reading is about words and meaning rather than just about sounds and blending. Nonetheless I believe that a mixed approach is best - my daughter did need to know how to work out new words so that the reading would be more meaningful.
She is now 4 years old and reading at about a grade 2-3 level. She is working almost all new words out by herself using phonics as well as determining what word would make most sense in the context. We did teach picture cues also though she tends to use more phonics and she also uses general grammar as she knows when a word should be in the past tense rather than the present tense without me having specifically taught the -ed ending (we should be covering that soon).
Naturally the more methods a child can use to read correctly the more likely it is that they will become fluent readers. We have also worked on fluency with her by letting her read books multiple times, reading nursery rhymes, following the print of books read to her and getting her to read with expression by teaching exclamation marks and the use of capitals in text for emphasis.
So the question becomes will she be able to make the grade 4 reading level leap which is often spoken about by people who choose phonics over the whole word approach. I believe she will be able to as I do not believe in a single approach - my daughter can read both by sight and by phonics and she is only 4. Her fluency is very good and it is fluency in the end which seems to help most readers actually enjoy reading, so the faster they can achieve this the better.