Why invest early is important for young adults?
Why invest early? – is a question that plagues most young adults. Many research and polls demonstrate that the sooner you invest, the better off you are. The best time to invest is during or after college when you are in your early 20s.
Investing early in life teaches you financial independence and discipline. Early investment explains the proper distinction between investing and saving.
Never consider your age to be a barrier to investing. You are never too young to do so. You will have more money in your pocket in the future if you invest a tiny bit of money from today onwards.
Investing early is advantageous because you can plan your investments and give them enough time to grow into a corpus that can meet your financial goals.
If you are a young investor looking for inspiration or wondering if it is a good idea to start investing early, here are some of the best reasons.
Reasons to start investing early
1. Save more
Starting early, you will acquire the habit of saving more when you start investing at a young age. The more you invest now, the more you will receive in the future.
As a result of that cognitive process, you tend to save more by reducing unnecessary expenses on your part and investing the money you save.
2. More recovery time
If you invest early, even if you lose money, you will have more time to recover your losses.
An investor who begins investing later in life, on the other hand, has less time to recuperate for his losses. As a result, if you invest earlier, money has more time to rise in value.
3. Time value of money
Compounding gains arise from early investments. Money has a temporal value that increases with time. Regular savings started at a young age can pay off handsomely when it comes time to retire.
Furthermore, early investing allows you to enter the world of finance sooner. With time, your money will increase in value. You can buy items that others may not be able to afford at that age because of early investments – putting you ahead of those who would instead invest later in life.
4. Polished risk-taking ability
Young investors are more capable of taking risks than older investors. Adult investors, on the whole, are conservative and desire stability.
Therefore, they reject high-risk investing opportunities. The more the risk, the greater the gain; as the old saying goes, with a tremendous risk-taking attitude, the likelihood of making substantial returns at an early age increases.
5. Not becoming a debtor
Investments made young can be pretty beneficial. Whenever you need money, you will have it in surplus. You will never need to borrow money or become someone’s debtor if you have enough money invested with you.
When you have money parked in the correct investment channels at the right age, you can lend it to others; that is, you can instead become a creditor.
6. Solid corpus for achieving the big dream
Early age investments enhance the probability of reaching financial stability at a very young age.
If you start your saving and investing journey at the age of 20, you will have a perfect corpus by the age of 40 to 50, and you will also have a better idea of how your investments worked out.
Post that, you will have a corpus big enough that you will be able to take care of that dream house of yours or have a good retirement life. With technology at a younger age, you invest in avenues that can give high returns.
Investment in self-research will give you confidence and help you make many bold decisions in life. So, the earlier you start, the easier it is to build wealth.
The example below shows how beneficial it is to embark on your investing journey early in life.
Ram invested Rs 2,000 per year in balanced mutual funds between the ages of 24 and 30; he earned a 12 percent after-tax return, and he continued to make 12 percent per year until he retired at age 65.
Shyam also invested Rs 2,000 per year and earned the same return, but he waited until he was 30 to start and continued to invest Rs 2,000 per year until he retired at age 65.
It is difficult to imagine at the end of the age of 65; both would end up having 10 Lakhs. But Ram had to invest only Rs 12,000 (i.e., Rs 2,000 for six years), while Shyam had to invest Rs 72,000 (Rs 2,000 for 36 years) or six times the amount that Ram invested to delay his investment by six years.
If you expect an annualized return of 18% on your investments, it means that after four years, your money will double, your investment will multiply four times in the next four years, and so on.
This shows how compounding has a significant positive impact in the later stages of the investing cycle. As a result, you must keep your money invested for longer so that the force of compounding can help you become wealthy.
There is a significant difference between investing from the age of 18 and starting to invest at the age of 28. The gap of 10 years between these two starting points will have a tremendous impact on the wealth corpus you will have at the end of your investment period.
The more you can compound interest on your investment, the faster investment will accumulate and the better off you will be when you retire and start enjoying your savings.
So early investments in your career will help you build a secure future.
Consult an expert advisor to get the right plan for you
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