The youth today is earning a lot more than earlier. However, all they do is to waste it. Financial freedom, lack of responsibilities, loan burden, can be a few common reasons for them not to save and invest. Investing in the early stages of life is very beneficial. Here are a few benefits of early investing.
Power of compounding
Compounding is a compelling concept. It means the returns are reinvested to earn higher returns. The profits earned might seem small, but, in the long term, they add up to become a considerable corpus. The longer one stays invested, higher will be the increase in wealth.
Higher risk appetite
Investing in the early stages in life gives enough time to recover from any losses that occur. It enables the person to take higher risks as he has more time to recover. Also, investing in the early stages of life, where the responsibilities are minimum, allows an investor to invest in equities, which are high-risk products but also pay off for the risk taken. As the age increases the responsibilities increase, and this reduces the risk appetite of the person.
Investing in the early stages of life allows a person to be disciplined in their spending habits and stick to the budget. Practicing this habit of investing regularly, an investor, improves his spending habits and will be able to cut expenses if needed. This habit of theirs will pay off, in the long run, giving them a considerable corpus to finance their goals.
Higher corpus during retirement
Retirement is one goal that investors always postpone. They think they have enough time to think about retirement and can start investing for it when they turn 35 or 40. However, as age increases the financial responsibilities will be more. Also, allocating a significant amount towards retirement will seem like a burden then. However, having a peaceful retirement will be one of the goals. So investing a little from the early 20s will reduce the financial burden and can help accumulate a considerable amount of corpus needed for retirement. Mutual funds SIP an excellent tool for investing in small amounts regularly.
Let’s look at an example. An investor, Mr. X, started investing Rs 5000 monthly at the age of 20 and planned to redeem it when he is 60. The expected return from the investment is 12%. With an investment of Rs 24 lakhs, the maturity amount at the age of 60 is Rs 5.88 crore.
Another investor, Mr. Y, started investing Rs 5,000 at the age of 30 and planned to redeem it when he is 60. The expected return on investment is 12%. With an investment of 18 lakhs, the maturity amount at the age of 60 is Rs 1.75 Cr.
Hence, by investing in the early stages, one can accumulate a vast corpus for their retirement and take advantage of the power of compounding.
If you haven’t invested already, then start investing. Any time is the right time to invest. Better late than never right!