“The best time to plant a tree was 20 years ago. The second best time is now.”
Youngsters across the country have realized the benefit of investing early. But before you start investing, a truckload of questions cross your mind. What is the best age to start investing? Do I need to start right away? What are the advantages of investing early?
While the advantages of investing early are multiple, here are some key benefits of early investments which will cause a positive change in your financial life. Don’t miss out on these Benefits of Investing Early!
The top 10 Advantages of investing early are:-
1. Longer the investment tenure, smaller can be the investment amount
Let’s assume you have a goal amount to have before retiring. To understand it better, we will take an example.
Let’s say you want to have a sum of Rs 20 lakh by the end of 7 years. You decide to invest in equity market to reach this goal. Although there are no guaranteed returns in the stock market, you can still easily get long-term returns up to12% range.
Now for saving Rs 20 lakh in 7 years, you would have to invest Rs 15,000 monthly. Your total investment amount would come upto Rs 12 lakh.
On the other hand, if you start investing towards the goal after 2 years, your monthly investment amount would have to be Rs 25,000 to achieve the same goal of Rs 20 lakh. Moreover, your total investment amount would rise to Rs 15 lakh.
2. Greater Risk Appetite
Typically, trades that are more volatile give the highest return on investment. Investors, who have time on their hands to recover losses, have the opportunity to take riskier ventures.
Those who begin investing later in life are inherently more careful with how risk they take up. Individuals reaching retirement years may turn towards low-risk or risk-free investments, such as bonds and certificates of deposit (CDs), while young adults can curate more aggressive portfolios that can withstand greater volatility and produce larger profits.
3. More time of compounding interest
Simply put, compound interest is the interest earned on interest. By repeatedly reinvesting your profits, you are exponentially increasing your ROI.
Veteran investors understand the perks of investing early and take advantage of the potential gains from compound interest.
To better understand how time and compound interest are related, here’s an example:
Twenty-five year old Naina invests Rs 20,000 annually over 10 years in stocks with an average growth of 12 percent. When she retires, at the age of 55, her investment would have grown to Rs. 7,18,992.83.
On the other hand consider Anand, age 34, who invests Rs 20,000 annually over 20 years in share market. At age 55, Anand who has invested three times as much as Naina, and will have Rs. 2,17,851.07 in his retirement account.
Total Investments Required To Create Rs 20 Lakh
|Time||Monthly Investment||Total Investment|
|7 Years||₹15,000||₹12 lakh|
|5 Years||₹25,000||₹15 lakh|
A single Rs.20,000 investment at age 20 would yield about Rs. 1,47,168.35 by the time the investor was 60 years old (based on a 5% interest rate). That same Rs 20,000 investment made at age 30 would come up to Rs. 89,354.89 by age 60, and made at age 40 would yield only ₹54,252.81.
The longer money is made to work, the more wealth it can create.
4. Early Retirement
Gone are the days when 60 was considered a normal retiring age. Today, right from college students have charted out the age by which they’d like to retire. Movements like F.I.R.E. (which stands for “Financial Independence, Retire Early), 3M before 30 etc are gaining quick momentum.
Retiring early requires reaching a stable financial position early. And this you can achieve by investing your savings (and or part of your salary).
Early age investments increase your chances of reaching financial stability at a younger age. Setting up a retirement fund from the age of 20s rather than the age of 40s is always a better idea.
5. More time for capital accumulation
Its always better if you have a larger fund amount while trading as it covers risks.
This is one very important reason – the earlier you start, the more you would be able to accumulate, and the better are your chances of reaching your financial goals. You can start your investment journey with small amounts and as your salary increases, you can simultaneously raise your investments as well. Increasing your investments gradually puts reduced burden on your salary, and with such minor increments put together over a long duration, your money grows.
6. Wrong is ALL-Right, when you have time
Young investors enjoy greater flexibility and time to learn from their successes and failures. Since investing is no one day process, young adults have an advantage of years to study the markets and refine their investing strategies. They can overcome investing mistakes at a much lesser cost as they have the time needed to recover.
7. Tech Savvy
We live in a highly connected, tech-savvy world. There are in-numerous platforms to learn and know which investment is best. With the use of technology at a younger age, you can invest in avenues that can give high returns. An investment with self-research and sound technological backup will prove to be way better.
8. Custom Strategies for Later Stages
A headstart of 20+ years sounds amazing, doesn’t it?
A 2017 Report suggests that the average salaried people considers investing 5-10 years before retiring. Let us assume that most people retire by the age of 60. This means that most people even think of investing in their late 40s or 50s.
By investing early (in your 20s) you get an additional 20 years to fall, get back up and make a strategy suitable for your life goals.
Want to spend retired life traveling? Want to have enough capital for buying a beach house in Mumbai? You can start customizing your strategy (of course with trial and errors too).
9. Tax benefits
The beginning of your earning years also commemorates your income tax liability. Hence, you need to implement tax-saving strategies as soon as your when your income flow starts. Investing in instruments offering tax benefits can vastly deduct your tax burden. For instance, ULIP premiums are eligible for reductions up to ₹ 1.5 lakh from your taxable income under Section 80C of the Income Tax Act, 1961.
10. Chart out better spending habits
With early age investments, you develop a routine of saving first and spending later. The more you invest, the more you get in future. As soon as you understand this motto, you are likely to save by cutting on unnecessary expenses and direct this amount towards your investment principle.
Question- When to start investing? What are the signs that you’re ready for investments?
Answer- Ideally you can start investing at any time of your life! But it would be less bothersome for you if you have paid off all your loans and have a steady source of income. (It doesn’t matter how ever small the income is, start by saving at least 10% of it every month).
Some imminent (and obvious) signs that you should start investing are – a. You have a surplus every month or b. You don’t have to take loans to start investing.
Question- Should you start investing at 18?
Answer- You can start investing at 18 if you have even a small income source. Even dedicating a little portion of your pocket money can do wonders for you in the future! One other important thing you can do is learn about markets in this age. So that you can start investing as soon as you start earning.
Question- Should I invest regularly when I start? How often should I invest?
Answer– When starting out, you can do lumpsum amounts that you’ve saved or you can dedicate a part of your monthly income to your investment principle.
Question- Is 25 a good age to start investing?
Answer- Your 20s are the best age to start investing. It is the time when external monetary responsibilities are minimal, yet time and wish to learn are maximum. By starting to invest in your 20s, you are taking a step towards financial freedom.