Five reasons to start investing at an early age
3min 24 seconds read
People often wait until later in life to start investing, even though it is the most effective way to safeguard their financial future. It is more common for first-time jobbers to upgrade their lifestyle than to plan for their future. In other words, they don't start investing until later in life.
Even though it's never too late to start investing, there are many benefits to starting early. Besides, investing early in life can help young investors save more than investing later in life since they have fewer commitments at the beginning of their professional journey.
Let’s look at the five main reasons to start investing at a young age:
- Enjoy the Power of Compounding
The most significant benefit of investing early is having additional time at your disposal. With the help of compounding, there is a better possibility of you being able to grow your investment over time. When your returns compound, the interest you earn on your investments is reinvested to generate more returns.
Let’s look at an example:
Say you start a Systematic Investment Plan at the age of 25 when you get your first salary. You start with a SIP Amount of Rs 1000 at an average return of 10% per annum.
At the age of | You’ve Invested for | Invested Amount (Rs) | Earned Total Corpus of (Rs) |
35 | 10 years | 1.2 lakh | 2.05 lakh |
45 | 20 years | 2.4 lakh | 7.59 lakh |
55 | 30 years | 3.6 lakh | 22.6 lakh |
60 | 35 years | 4.2 lakh | 37.97 lakh |
*This is strictly as an example. The returns shown in the table are purely hypothetical and for illustration purpose only. Mutual Funds do not offer any assured rate of return.
As you observe, even a Rs 1,000 investment may help you build substantial wealth over time.
Here, it's important to note that the power of compounding also applies to lumpsum investments.
- Improve Your Risk-Taking Ability
There is no doubt that risk has a direct correlation with reward. A long-term investment might help you manage your risk better. When you are young, you have the choice to invest in relatively risky avenues and decrease that risk as you age. As you grow older, you may find it harder to take high risks due to mounting responsibilities such as EMIs, children’s education, mortgage, etc. Investing early gives you a chance mitigating risks and building wealth without any financial stress.
- Makes It Easier to Manage Losses
When you start early, you have time on your side. Losses could be because of ill-informed decisions, or market volatility. You can review your investment approach if required and manage losses better. For example, in case of volatility in the markets, you may be better equipped to manage it with SIPs in mutual funds. When you start investing in Mutual Funds via SIPs, you are basically averaging out your investment cost by buying more units when the market is low and fewer units when the market is high. This is known as rupee cost averaging. If you start investing early, rupee cost averaging may help you manage your losses better.
- Make Informed Decisions
When you have more time on your hands, you can compare different investment options and even rebalance your portfolio whenever necessary, giving your investments time to mitigate the risks and enhance your returns. Besides, investing early helps you understand the nuances of the market with more time for trial and improvement and reduce your stress or fear of investing later in life.
- Fulfil An Early Retirement Goal
Reaching your retirement goal faster may be possible if you invest early and in the right investment avenues.
Say you wish to reach a Rs 1-crore mark to retire early.
Started investing at the age of 25 | Started investing at the age of 35 | ||
SIP Amount (Rs) | 10,100 | SIP Amount (Rs) | 10,100 |
Assumed Rate of Return | 12% | Assumed Rate of Return | 12% |
Invested Amount (Rs) | 24.24 lakh | Invested Amount (Rs) | 12.12 lakh |
Final Corpus at the age of 45 (Rs) | 1 crore | Final Corpus at the age of 45 (Rs) | 23.5 lakh |
*This is strictly as an example. The returns shown in the table are purely hypothetical and for illustration purpose only. Mutual Funds do not offer any assured rate of return.
As illustrated in the above example, investing early may help you reach your target amount faster and may even help you get an early retirement (or any other goal).
Conclusion
There are many benefits to starting your investments early. As a young investor, you can take advantage of time spent in the market, that helps manage risk and build an emergency fund while reaching your financial goals faster. Thus, if you want to increase your chances of growing your investments, it's totally worthwhile to begin investing at a young age.
Disclaimer
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.