Why should you start investing early in life?
01 Jun 2017
Nutan Gupta
New Page 1
We have always come across the advice of "the sooner the
better".However,living in a rapidly changing environment,
hardly do we pay attention to this. It happens quite often that we are so busy in paying
household bills, splurging on new technologies and paying loans that there is hardly any
time left to pay attention to investments. Though, it is a proven fact that even the smallest investment can have a long lasting impact on
your financial status.
Better risk appetite
One of the biggest advantages of starting investment early is that you
can take as many risks you like. In investing, volatile ventures aim to give the maximum
returns too. Hence, you can invest in it and hope that the leap of faith would pay off.
Since you started early, even if things don’t go as planned, you still manage to get
enough time to recover and start afresh. Something which might not be possible if you
start investing later in life.
Benefits of compound interest
Compound interest works on the basis of earning you interest on your
interest. So, if you constantly reinvest your earnings, you might end up earning more due
to the power of compounding. Let’s understand this with an example:
|
Amit
|
Abhijeet
|
Amount invested |
Rs. 1000
|
Rs. 1000
|
Age at start of investment |
25 years
|
30 years
|
Age at end of
investment |
60 years
|
60 years
|
Tenure of investment |
35 years
|
30 years
|
Rate of
interest |
12%
|
12%
|
Corpus at the end of investment |
Rs. 64 lakh
|
Rs. 35 lakh
|
Amit and Abhijeet both invested the same amount with the same interest
rate but Amit ended up having a larger corpus. This was because he started 5 years early
and the power of compounding worked for a longer time in his favor.
Improved spending
Investing early helps you develop a habit of saving. This would also
ensure that you don’t spend recklessly on the things you don’t need. You would
spend more responsibly since your goal is to earn money by saving it. The more control you
exert on savings today, the more lavishly you can spend tomorrow.
Freedom to learn by doing
Since you start early, you get the benefit to study and learn to invest
from both the ups and downs of the market. You can experiment and learn from your
investment strategies and improve on them as time goes by. You may gradually start
reducing mistakes and become more absorbed in understanding the nuances of the market.
This can help you achieve great success ahead.
Investing early is not just for retirement. You can do it for various
other goals as well. You can start early to save for your first house or your vacation to
Bangkok or to buy the new sports bike that you fancied. Contributing to investments will
give you a disciplined outlook towards your earnings. It would help you avoid those
irresponsible spending and ensure you have a secure fallback option in times of need.