When starting early Time is your friend. Start investing as early as possible so your investment will have more time to grow. The stock market will be up and down in the short term, but historically it has been one of the best wealth generating tools over the long term. ly, time is your friend. Compound interest will work for you every year and you will be amazed at what it can do over 30 - 40 years.
1. Start with a Small amount
One of the biggest reasons to start early is that you can start with a small amount. In our early days of our professional, our income will not be that great to save and invest. Also, the truth lies in the fact that how much you save is not really important.
Let’s take an example:
Suppose your age is 20 Yrs and you start investing Rs 1000 per month for till the age of retirement. Considering the age of retirement as 60.
Assuming your money grows at an annual average return of 12% per annum and have 40 years of time in hand. Rs 1000 invested monthly for the next 40 years can fetch you One crore Twenty lacs of the corpus at the time of retirement.
Yes, that’s correct it's One Crore, this is the power of compounding!
Supposedly we start the same at Age 30, what happens to your Investment.
Assuming your money grows at an annual average return of 12 % per annum and now you have 30 years in hand before you retire. Rs 1000 invested monthly for the next 30 years will fetch corpus of 35 lacs.
“Compound Interest is the Eight Wonder of the World,
He who understands it, Earns it,
He who Doesn’t, Pays it” - Albert Einstein
2. Power of compounding works for you
The other reason for you to start Investing Early is the Magic of Compounding. In order to understand this, we need to define compounding. Textbooks and Wikipedia, define the term ‘Compound Interest’ as follows – ‘Compound interest’ arises when interest is added to the principal, so that, from that moment on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding. Although we use the word ‘interest’, the process of compounding applies equally to all forms of returns, not just those that are called interest.
Let’s take an example :
It is very evident in the above example if Rs 100,000 invested for 5, 10, 15, 20,25 and 30 years will give you Rs 1.7 lacs in 5 years and Rs 17.45 lakhs in 30 years. The compounding effect is clearly visible as the extra amount is exceedingly high over a period of 30 years. The gain in the first 5 years is Rs 0.68 lacs and in next 5 years it is Rs 0.98 lacs and the next 5 years it is Rs 1.58 lacs and so on.
This also means that someone who invests for 30 years will earns 17 times the principal amount compared to someone who will invest for 20 years will earn 7 times the principal. The difference is humongous.
Compounding means that the returns on investments themselves become part of the investments and start generating returns. The arithmetic of compounding means that investments start generating disproportionately higher amounts after some years. This makes long-term investing especially rewarding.
3. Higher Risk, High Gain
Age plays an important role in investing. Lesser the age higher the risk-taking capacity. When you are young, a stock market correction should always tempt you to invest and take higher risk by investing in the down market. If you can handle and manage a few business cycles you will see your portfolio grow when the market recovers. Hence the risk-reward relationship will compensate you.
4. Early Retirement
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 the power of compounding putting some effort and disciplined investing.
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 biggest of starting Investing early is Financial Independence. As you know life is uncertain and there is no guarantee that it will keep going forward the way we want it.
Once we are financially independent you can pursue a life of your dream without any worry of paying your monthly bills, household expenses, loan payments and most of all job security.
In today’s Tech Savvy world with so much of information available you should not miss the chance of starting your first savings. If you are a young adult you should start saving as early as possible many savings avenue are available and make yourself Financially Independent.
Comments