Why You Should Start Investing Early:
If you have ever invested in stock market you would agree that investing has always been one of the best ways of creating a passive source of income. Investing early, has even bigger advantages. In the early stages of our life, saving and investing are the last things we have in our mind. However, the fact that most people do not understand is that starting to invest early in life has its own advantages, and can have a significant impact on your financial life. In this post we will learn 5 reasons why you should start investing early in life.
1. You Can Start With a Small Amount:
When we start a fresh career, we do not have much income to save and invest. While most us see lack of savings as a problem, the truth is, how much you save does not really matter.
One of the biggest reasons why you should start investing early is that you can begin investing even with a small amount and can still make a meaningful corpus over the long term.
On the other hand, if you delay your investments, you have to invest more money in order to achieve the same goals.
Understand this with a simple example.
Let’s say you start investing in your 20s, and want to retire by the age of 60.
You currently have only Rs.1,000 as savings and can save only Rs.500 per month.
Assuming you get 12% per annual average return on your investment, and have 40 years of time in your hand (60-20=40), a small sum of Rs. 500 per month can fetch you a corpus of almost Rs. 50 lakh by the time you retire.
Yes you read it right 50 lakh, that’s the power of compounding.
Here is how your investment will grow over the years if you start investing in your 20s.
Let’s now see what happens if we delay our investment by 10 years and start investing late in life.
Assuming you start saving and investing in your 30s, you have 30 years of time to retire (60-30=30). In order to achieve the same retirement corpus of Rs.50 lakhs, you have to start with Rs.5,000 as initial savings and invest Rs.1,500 every month in order to achieve similar goal.
A delay of ten years not only requires 5 times the initial amount to be invested, but also 3 times monthly savings compared to investing in your 20s in order to achieve same financial goal.
A screenshot of how things pan out if you start investing late in life is given below:
The example above is enough to bust the myth that you need large capital in order to get rich. You don’t.
In fact some of the richest investors in India and across the world had a very humble beginning.
It was their will to start early and stay invested for a long period of time that helped them amass huge wealth.
Next time if you think whatever you save is not enough to make you rich, just come back and read the above example once again.
2. Power of Compounding Works For You:
The second reason why you should start investing early is to harness the power of compounding.
Charlie Munger, partner of Warren Buffett once said, “The big money is not in buying and selling, but in waiting” Real wealth lies in disciplined investing and power of compounding.
Compound interest was called the eighth wonder of the world by famous scientist Albert Einstein.
It’s like a snowball that gets bigger every time your investment generate earnings. You receive returns not only on your initial investment but also on capital gains accumulated over time.
The power of compounding can be demonstrated by a simple example.
If you invest Rs. 300 per month for the next 10 years, you will end up with total amount of Rs. 67,200.
If you invest Rs.600 per month, and stay invested for the same period, you will get Rs. 1,34,421 as the final amount.
See how money is growing exponentially? The more money you put in, more you get in the end.
As it’s clearly visible, compounding is really a powerful tool to grow your money, and the longer you stay, the better it gets.
Note: If you want to know more about How you can start investing with a small amount, You can Read the following post:
So the next time you crave for that fancy phone you want (but don’t need), just pull out a calculator and do a simple calculation on how much that amount will become over the years if you decide to give up that instant gratification and invest the same instead for long term. I bet you will never spend a penny on such unnecessary things.
3. You Can Take Bigger Risks:
Life is always a risk. It is impossible to predict the future and life does not give you time to prepare yourself for the setbacks that you may have to face in the future.
Why you should start investing early? Because an investor’s age has a great influence on the amount of risk he or she can take.
When you are early stage of your life, you have a lot of earning years ahead of you, giving you a chance to make mistakes and fix them if you deviate from your financial goals.
As a young adult, you can be more aggressive with your investment approach and increase your exposure to high risk equity market that also provide higher returns for the risk taken.
As you grow up, you have little room to make mistakes. In this stage, one financial mistake can ruin your entire retirement corpus.
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Thus, as you grow older it is always advised to move from high risk assets such as equities to low risk assets such as bank deposits.
Starting to invest early allows you to make mistakes and fix them on time without damaging your financial life. It also allows you to be experimental which is necessary to make better investment decisions.
It’s okay to make mistakes, and one should not be too afraid to make one. The only thing worse than taking risk is not taking any.
So be experimental with your investment while the time is on your side, which gives us another reason why you should start investing early.
4. You Can Choose To Retire Early:
Let’s admit, most of us hate our jobs and none of us want to keep working forever, and there are rational reasons behind it. Working a job is a means to gain financial independence, but when work takes up so much our time that you forget to live, it becomes more of a burden.
One of the biggest reasons why you should start investing early is to be able to retire early so that you don’t have to go to the office you hate, and do the same routine job that you never liked.
So how does starting to invest early in your life help you in early retirement? Well, the answer lies in power of compounding putting some effort, and disciplined investing.
Earlier you start earlier your money starts working for you passively, generating more and more money every year.
Remember the snowball effect I talked about earlier? That’s exactly how your investments grow. Starting early simply initiates the process of compounding early, helping you reach your financial goals before time.
It is similar to going to work an hour earlier so that you can head back home an hour earlier than usual.
5. Financial Security and Independence:
The final and the biggest reason why you should start investing early is Financial Security. As I said earlier, life is unpredictable, and there is no guarantee that it will keep going forever the way it’s going.
I don’t intend to scare you, but that is the harsh reality of life, life does not come with guarantee card. That is why it is critical to become financially independent and secure before a mishap strikes.
Investing early helps you achieve your financial goals earlier, which not only keeps you secure, but also gives you enough freedom to pursue your dreams, and who doesn’t want that?
Once you are financially secure, you can pursue your dream life you always wanted to live without worrying about you job, you monthly bills, loan payments, and most of all, what if you lose your job?
Before I conclude, Here is an infographic that I would like to share with you that would sum up all the reasons why you should start investing early.
I am sure it will act as a motivation for you to work towards your journey towards financial freedom and independence.
Due to lack of financial education in our early lives, we do not understand the benefits of investing early and how it works.
However with better access to technology, more and more youngsters are educating themselves about their financial life and what it takes to become financially independent.
I hope you liked my reasons why you should start investing early.
Do let me know why you have invested or want to start investing. What are your hopes and aspirations? I will be eagerly waiting for your comment.