Starting your investments early provides you with multiple benefits that have a significant impact on your financial future. It not only helps you in making better decisions but also makes you self-sufficient and successful. Here are the top five reasons to start your investments early, followed by a few avenues of investments available.
1) Long time to invest.
The foremost benefit of investing early is making time for your friend. When you start investing early, you have a longer time to invest, which has a significant impact on your overall returns. It also helps in reducing the risks of your investment as the longer the investment tenure, the less the volatility in the investment.
2) Power of compounding
The power of compounding is the eighth wonder of the world and starting early in the long term journey helps you reap the most benefit out of it. When you start early in your investments, the expected rate of return also stays in a stable range and makes you compound small money into big corpus over extended periods of time, with the help of compounding.
Most of people often realize the power of compounding late in their life, thus leading them to take more risks for higher returns. For example, a monthly SIP of Rs.2000 over 10 years at 12% will create a corpus of Rs.4.6 lakhs, if you continue it for 10 more years, your investments compound to Rs. 20 lakhs. That is the magic and the power of compounding when you start early in your life.
3) Achieve goals easier way.
If start investing from the day, you get your first salary, you will not find yourself taking huge debt in the later part of your life to fulfill your goals. We all have certain aspirations in life, be it getting a lovely home or owning a luxury car, or going on a vacation. All these goals or aspirations stay a dream if not planned for it in an early stage. If you start investing early for each of these goals, you come closer to making these dreams into reality.
4) Improves risk-taking ability.
Early investing gives you the luxury of taking risks at an early stage, which may lead to higher returns too. As you move up the ladder of age the risk-taking ability goes down from aggressive to conservative, which holds you back from taking risky investments.
For example, a 25-year-old professional can invest in high-risk investment categories like small-cap companies at the early stage of the investment journey, since he has a strong earning capacity and longer time to earn than a 50-year-old professional. In the latter case, the professional has hardly a few years of working life left, which holds him to take high risks and stay invested with a conservative approach.
5) A peaceful second innings.
Everyone today is busy creating retirement plans and planning their expenses and investments accordingly. The benefit of investing early is a more peaceful and secure second innings of life where you don’t have to worry about the high cost of expenses, debt repayments, educational expenses of children, etc.
The power of compounding ensures even your smallest investments grow exponentially over the long term, which removes your worry about later-stage retirement planning.
George Washington Carver said, “Start from where you are, with what you have, make something out of it & never be satisfied”. The quote is a perfect summary of why to start investing early. Start investing early with what you have, compounding will make something out and you should continue this discipline of investing and never be satisfied with it.
When it comes to investing, there might be plenty of options to consider. A few of them are listed below.
1) Mutual funds – Mutual funds offer a diversified investment option that offers exposure to a wide range of assets, including stocks, bonds, and real estate. By investing in mutual funds, individuals can achieve diversification and professional management of their investment portfolio.
2) Passive funds (ETF) – Passive funds or ETFs are a type of instrument that replicate the allocation of funds from an underlying index. Once an individual is used to market volatility and up and down cycles in the markets, they think of investing in passive funds. They are cheaper than mutual funds and can help in increasing huge wealth in the long term.
3) Equity – Equities are one of the best asset classes to create wealth over an extended period. They provide you with opportunities to invest and own great businesses in the country and the world. Equities carry the highest risk of all these three categories, and thus they have the potential to give high returns too. Additionally, equity holders are entitled to create wealth by way of earning dividends, which over the long term create a reliable source of passive income too.
FAQs Related to Early Investments
How early to start investing?
There is no specific age to start investing. Even if you are a minor, you can start investing with the help of your guardian. If you are earning a major i.e. 18+ you should start investing with your first salary as it helps in compounding well.
What is the minimum investment required in mutual funds?
Mutual funds are the easiest and most affordable asset class of investment, in which you can start investing with as low as Rs.100.
What is the best time to start investing?
There is no best time to start investing in a year, you can invest on whichever date, whichever month, etc.
Which is the best way to start investing, Equity or Mutual funds?
The answer to this question depends on what kind of investor you are, beginner or experienced. If you are a beginner start with mutual funds investing, where you get to know the cycles in the markets, how the market reacts on different occasions, and different news. Once you get comfortable with these cycles, ups & downs of the market you can start for investing in equities.
