If you are in your 20s, then you probably think it’s too early to start investing. And thoughts like ‘I don’t earn enough yet to start investing’, or ‘investing involves a lot of risk and I don’t wanna risk my hard-earned money’ might be keeping you from taking a leap into the share market. People who have just begun their career also want to spend their meager income on nice clothes, latest gadgets, eating out at fancy places, and whatnot. This is precisely why most people miss out on one of the most crucial, if not ‘The’, steps towards a lifetime of financial freedom and financial stability, which is – start investing early. Here’s why you should do it.
Reasons to Start Investing Early
Your Money has More Time to Compound
Irrespective of your income or age, if you are not compelled to start investing early, chances are that you are not aware of the magic called compounding. It’s something that Einstein referred to as the ‘Eighth Wonder of the World’. But you don’t have to be a rocket scientist to understand this simple concept. So, what is compounding? In simple terms, it is when your profits from an investment earn you profits to make your money grow exponentially.
Now suppose you have ₹1 and that amount is doubled every day. How much do you think you will have at the end of the week? By doubling your money everyday, you will have ₹64 after 7 days.
At the end of two weeks? ₹8192.
After three weeks? ₹10,48,576.
Can you guess how much it would be after four weeks? That’d be north of ₹13 crores. That’s compounding! Give your money time and it will grow beyond your wildest dreams, and when you are start investing early, time isn’t an issue as you can let your money grow till you reach the age of 50, 60 or even 70 years.
Your Risk Taking Ability is High
There is no denying that your income is less at the beginning of your career. But the weight of responsibilities on your shoulders is also limited. Thus, when you start investing early, you enjoy the freedom to take risks that you probably will not have any time in the future. Undoubtedly, some of your risky investments will go sour overtime, no one is dealt the perfect hand every time. But some of your investments will make up for the losses from the rest and provide you with an excellent return on your total investment.
Equities are a riskier investment than fixed income deposits that practically bear next to zero risk. A rule of thumb says that one must invest 100 – age in equity. Thus, a 25-year old can invest about 75% in equity, while a 60-year old must not invest more than 40% in the stock market.
Investing will Improve your Spending Habits
Good habits are hard to make, and bad ones are even harder to break. Therefore, if you get into the pattern of spending a big chunk of your income on luxuries, then that is likely how you will be spending the rest of your life. There won’t come a day when you magically decide to lead a more grounded life and change your lifestyle entirely. So, it becomes crucial that you develop this habit early in your life.
No matter how much you earn, start investing/saving at least 20 percent of it. If your income grows, so should your investments. This way, you will always have something available for a rainy day, and rainy days do come.
You Incur Lower Investment Costs
Starting to invest early can bring down your investment costs by a huge margin. This is especially true for life insurance policies. When you buy a life cover at an early age, you can pay for your policy for a longer period; thus having to pay a small premium. This will put less pressure on your monthly income. Term insurance is something you want to consider taking when you are young. It will protect your loved ones, people who are financially dependent on you, against any money-related problems, in case of your demise. By paying just a few hundred bucks every month, you can buy a life cover of up to ₹1 crore, or even more.
You can Opt to Retire Early
Early retirement is a dream that almost everyone has, but only a handful realise? Why? Mostly because people believe they are too young to start investing and end up losing out on the biggest money-making opportunity of their lives.
Assuming that you earn a return of 18% CAGR (compounded annual growth rate) from your monthly investment of ₹20,000, you can have a corpus of over ₹4.6 crores in a matter of 20 years. Now, imagine you start investing at the age of 28 years. That’s ₹4.6 crores at the age of 48 years.
Conclusion: If you haven’t started investing already, start today and let your money work for you. Given enough time to compound, even a small amount of money invested regularly can give handsome returns. Do not refrain from taking risks as a young age gives you the liberty to recover from mistakes over the course of time.
How to Start Investing in Stocks
Invest directly in Stocks
If you think you can be a great stock picker and can predict which companies are going to grow in future, then you can buy your shares directly. All you need is a demat account. Some popular brokers in India include Zerodha, Upstox, Groww, and Angel Broking. You can register online and start investing from the very next day. Moreover, you only have to pay a small, sometimes zero, annual maintenance fee for your account.
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Buy Mutual Funds
While the chances of incurring losses from your investments in the long term is highly improbable, beating the index and making decent returns isn’t a cakewalk. That’s where mutual funds come into the picture! They offer money management services, investing your money in a portfolio of stocks they expect to give good returns over time, charging a small fee in return.
Read more: Top 10 investors in India who have made fortunes in stock market
So, what are you waiting for? Do not feel like you have missed the boat. The party has just begun and you can begin your investment journey right away.
Disclaimer: Investing in stock market involves risks. Kindly think carefully before investing.