Start early to reap maximum benefits
Investing, as with anything in life, benefits from an early start. In investing, slow and steady is good. Early and often is better. When you start saving early, your money has more time to grow. Time allows you to take risks. Those who begin to invest late in life are often inherently more cautious with how they invest their money. Moreover, you beneﬁt from the power of compounding – your investment earns income and that income earns more income. So, the sooner you start, the better your chance at building wealth in the long-term.
The longer money is invested, the more potential it has to grow – that’s how Warren Buffett used stock investment strategies to his advantage: Patience. “Investors who start early, practice patience and stick to a long-term investing strategy often see the best returns and financial success,” say financial experts.
Let’s illustrate this with two cases. Let’s assume Mr A is 25 years old and Mr B is 40 years old. Both of them want to invest till the age of 60.
Mr A starts with Rs 5,000 a month through Systematic Investment Plan (SIP) and Mr B starts with a monthly investment of Rs 15,000. In both the cases the investments are done on the 1st day of the month at an assumed monthly compounded growth rate of 12%. The total investment made by Mr. A is Rs 21 lakh and Mr. B is Rs 36 lakh. However, the retirement corpus of Mr A will be close to Rs 3.25 crore and that of Mr B’s would be just about Rs 1.5 crore (As shown in the illustration above). Just a difference of 15 years allowed Mr A to accumulate almost 2.17 times the corpus of Mr B. Despite investing more than Mr A, Mr B could not match up to Mr A’s final corpus. That’s the miracle of time and power of compounding.
The money invested early goes on to grow into a huge corpus due to the higher number of years of compounding. Thus, starting to invest early is the best way to give your money more time to compound.
Investing early also allows you to develop disciplined spending habits by focusing on your budget and cutting expenses when needed. The early habit of financial discipline by investing early helps you grow a positive habit of saving and spending.
Age plays a vital role to determine your risk appetite. One of the biggest advantages of early investment is that you can take as many risks as you like. Young people, with years of earning ahead of them, get a chance to make mistakes and fix them if they deviate from their financial goals. Also, as a young adult, you can be more aggressive with your investment approach and increase your exposure to the high risk equity market that also provides higher returns for the risk taken.
Planning early and often for retirement will empower you to control every stage of life that could be quite exciting, if done right.
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