Overview
Investing is an exceptionally good and a responsible decision. Starting to invest early brings to you many advantages. You can fulfil your big dream and other financial obligations with your decision of start investing at an early age.
There are many sources and financial experts to help you with your investing journey today. Why not take the benefit of early investing? Let us learn about the Reasons for Starting to Invest at an Early Age.
1. Lower investments
In many cases it has been observed that starting to invest early can bring down your need of amount for investments. Since, you have a longer tenure available with you, the investing journey can be commenced with a lower amount of money. The younger your age, the lower would be your premium incase you buy a life insurance. Your lower amount of investment can help you gain maximum return along with the benefit of life insurance cover and accidental death cover with companies like Life Insurance Corporation of India. Insurance sector works on the mantra, “Lower the age, less is the premium. Higher the age more is the premium.”
2. Develops saving habit and improves spending
Individuals in the early 20s unfortunately develop the bad habit of unnecessary spendings. The companions are also not matured enough to guide each other. But if you choose an investment plan or option at early age, you will be able to develop the habit of disciplined saving. It will also help you have control on the unnecessary spendings. For example, if you take a life insurance plan with LIC where you need to pay yearly premium of Rs. 30,000, you will be forced to start saving some amount every month to accumulate the premium amount of Rs. 30000 payable every year for the period you choose for the policy maturity. Thus, you will find that your decision of early investing develops in you a sense of responsibility, disciplined saving, manage spendings, and build wealth for your bright future.
3. Benefit of Compounding
The benefit of compounding is the key factor that is motivating youngsters commence investing in the early 20s. Compounding has the magic that can grow your investment manifold in the long run. Investment pays investors return in two diverse ways – simple interest and compound interest. Compounding helps you earn interest on your interest i.e., the interest earned on your principal also earns interest and thus the overall value of your investments increases at a fast pace.
Let us understand how compounding works with an example.
We have taken here 5 investors falling in different age group who wish to go for early retirement at the age of 55 years. We name them here as Rajesh, Siva, Sneha, Lily, and Gopal.
➢ Gopal here started investing late at the age of 45
➢ Lily commenced her investing journey at the age of 40 followed by Siva at the age of 35.
➢ Sneha commenced investing at the age of 30 and Rajesh being smartest of all started investing at an early age of 25.
➢ All the above 5 investors have decided to retire at 55 and invest monthly Rs. 10,000 for the entire duration.
Let’s see how their money grows over that time.
| Name of the Investors | Gopal | Lily | Siva | Sneha | Rajesh |
|---|---|---|---|---|---|
| Age at the time of commencing the SIP | 45 years | 40 years | 35 years | 30 years | 25 years |
| Tenure for the Investment | 10 years | 15 years | 20 years | 25 years | 30 years |
| Age of Retirement | 55 years | 55 years | 55 years | 55 years | 55 years |
| Monthly invested amount (INR) | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 |
| Rate of interest | 8% | 8% | 8% | 8% | 8% |
| Total invested amount (INR) | 12,00,000 | 18,00,000 | 24,00,000 | 30,00,000 | 36,00,000 |
| Maturity Amount in INR | 18,41,657 | 34,83,451 | 59,29,472 | 95,73,666 | 1,50,02,952 |
| Ratio of Growth | 1.53 | 1.93 | 2.47 | 3.19 | 4.16 |
Key Takeaways
We can observe that the investment of Gopal grows 1.5. times. Sneha has gained growth by 3.19 times but the smartest one here Rajesh succeeded in creating wealth amounting to Rs. 1,50,02,952 which is by 4.16 times. It can be seen that longer the tenure more is the benefit of compounding. Thus, compound interest help you create the corpus you require to retire early at 55.
4. Ability to take higher risk
The simple rule that applies to investment is – “Higher the risk better is the gain, lower the risk less is the gain” In your 20s, you have good time to plan your investments and have more risk-taking appetite. It gives you scope to invest in high-risk avenues like equities, mutual funds which also offers higher returns. The higher returns can help beat the rising inflation. Early investing leaves with you the time to try investing in different investment avenues with different risk level. If you start investing late, you are forced to look for investment options with more safety. The investment avenues with minimal risk are generally known to offer lower returns.
5. More time to manage losses
During your early age, you have more scope to risk investments in varied investment avenues and time to recover losses if any arising because of the volatility in market. For instance, if you commence investing at the age of 22 and happen to make heavy losses in equity, you still have sufficient time till retirement that gives you time to recover your losses.
6. Early retirement
If you wish to go for early retirement, it is better to go for investing at early age. It gives you enough time to choose investment options that are designed to meet the need for retirement fund. You can build the required corpus by disciplined investing. You can choose to go for pension plans facilitated by different insurance companies. The plans are flexible. The tenure, premium, and retirement plan can be chosen considering your need of wealth for retirement and other financial obligations.
Meet emergencies
Emergencies can arise anytime in your life. You may be required to beg for money in the condition of medical or other emergencies if not developed the habit of saving. You can decide the amount of money you wish to park in an investment plan considering your income and need of money in short-term and long-term.
Your saved fund can help you in time of actual need like emergencies that include – medical treatment, child education, and more. Your good saving habit will help you make the right use of your income.
Things to remember while choosing an investment instrument
Since investing is a big decision, it is necessary to take into consideration the essentials that can help you choose the right investment instrument. Make sure the instrument you choose meets your investment needs. Moreover, it should feature better interest, minimal risk, liquidity, and of course safety of the principal amount. You can browse FD Vs mutual fund content online for information and better understanding.
You can choose to invest in insurance plans, equity, or bonds. If you are a risk-averse person, it is better to consider investing in fixed income securities that are known to provide comparatively better returns in the form of interest. It has the liquidity feature that allows you to sell or buy bonds in the secondary market. You can also aval the benefit of periodic income, predetermined interest, and security of the amount invested in bonds.
Consider the following while choosing an investment instrument
- Where to do the investment – shortlist a few beneficial investment avenues, the company,
- Rate of interest it offers – returns on your investment
- Time you have in hand
- Your financial goals
- Income tax implication
- Liquidity feature
Why Choose BondsIndia?
Advantages at BondsIndia
- The online KYC process at BondsIndia eliminates the need for a backend verification team reducing the manpower cost.
- Online trading enables simultaneous bond trading by multiple people at the same time at a low incremental cost to the company.
- Focus on investor awareness and education to increase the investor base in the bonds market.
- Different product offerings allow crossing sell products to investors and thereby increasing Average Revenue Per User (ARPU).
- Digital marketing to increase customer reach and reduce dependency on FOS.
Bottom Line
The above shared information may help you gain motivation and understand why one should commence investing at any early age. You do not need much to begin. There are options like SIP, insurance plans, and more options that you can consider for yourself. You can start as little as Rs. 500 or Rs. 1000 per month. The amount can be increased as there is growth in your income.
The more you invest the better you yield at the maturity. You can increase Return on Investment (ROI) with reduced brokerage cost and competitive pricing of products. For the same, you can perform research online or seek expert advice on it. Financial institutions like banks and NBFCs facilitate fixed deposit that feature a fixed rate of interest, flexible tenure, return of principal, interest income irrespective of market conditions, and liquidity subject to a minimal penalty. You can also explore to known what is better than fixed deposit prior to your investing decision.
So, if you have not yet commenced investing, go for it immediately. Get set to fulfil your different financial goals in your life with a good habit of disciplined saving.