Why should you start investing as early as possible

27 Jul 2020 Read 1288 Views

You would have seen people breaking records and setting new ones. Records of being late and being last. But as far as the markets are concerned, it is always the early bird that gets the worm. Starting early always has its perks. And the world of investing is no different. While an investment can be made at any age, one cannot deny that early diggers get to the treasure faster. Now you might be having a million questions. Read further to find all the answers to your what, why, and how.  

Why should you start investing early? 

If you are one among the record breakers, better keep your game off the markets. Because the only direction it will take you is towards that of the failure; ultimately, it can be your career or anything for that matter, the time has a crucial role to play. And some factors which might side if you are an early investor are as follows, 

  • More time more experiments 

It is a well-known fact that your reward depends on the risk that you take. Hence, when you have more time in your arsenal, you can face any threat that comes your way without fear because you will have sufficient duration and capacity to offset the losses incurred. In other words, the period you will be working is more extended, offering you a better chance of taking the risk.  

For example, Rahul is 24 years old. He understood the importance of investing early and brought shares for Rs.10,000. Unfortunately, he invested the entire amount into one sector. Hence, when the market crashed, he lost the whole sum he invested. Being an early investor, he can work hard and meet the losses he had sustained. Above all, he will benefit from the experience and be more cautious in making more returns on his investment. But a person who is retiring or in his late 50's cannot afford to take such risks. He will have family, medical, and other expenses to prioritize over investing. 

Further, there are many investing styles, from value investing to technical investing, from intraday trading to index investing. Adding to that, there are different approaches and different strategies too. Concluding the one that will suit you might take time. Starting early gives you enough time to try, experiment, and find out the best fits you. Even if you fail, you will have the ability to come back.

  • Lesser responsibilities

A bird whose load is light can fly higher and farther. A lot of people skip investing or saving owing to commitments or responsibilities they have. 

 As you grow older, your responsibilities will increase, and so do your expenses. On the other hand, a younger person is free of such burdens. This will allow one to save and invest more. You will also possess the ability to take higher risks, which will ultimately fetch you a better return. 

Assume there are two people, A and B, who wanted to invest. A was 20 years old, and B was 40 years old. Now A will have fewer responsibilities and can take considerable risks to increase his returns. On the other hand, while B will have to meet several expenses like a child's education, hospital expenses, etc. Hence, his risk profile will be constricted. Moreover, he has a smaller period for investing than his younger counterpart.

  • Disciplined spending habits 

"Too many people spend money they haven't earned to buy things they don't want to impress people they don't like." - William Smith. 

One of the many qualities which differentiate a winner from a loser is discipline. Investing helps you in mastering that as well. Further, a person who invests will understand the cost of debt. Consequently, he will restrict himself from making unnecessary spending and will focus that amount on investing. This quality will significantly help in the long run, especially in tackling the difficult times of life. They will also know the importance of saving and understand how money works. For instance, a person who is into investing will want to curb spending on a luxurious watch and will want to divert into investing. And Following, you will be on the path of improving your lifestyle. 

  • Power of compounding 

Another crucial factor that might bring out the investor hidden in you is the power of compounding. While simple interest is the interest earned upon the principal, compound interest is earned on the principal and the accumulated interest. You can reap the benefits of compounding only when you reinvest the interest earned without spending it off. Above all, to multiply your returns, you will have to stay invested for a long duration patiently. Let me explain with a suitable example. Say Mr. X invested Rs.10,000 in two different schemes at 10% interest. 

His returns will be as follows,  

Particulars 

At the end of the first year

At the end of the second year 

At the end of the third year

Scheme 1 (Under simple interest)

11000

12000

13000

Scheme 2 (Under compound interest)

11000

12100

13310

Therefore, he will get more when he stays invested for a more extended period under compound interest.

  • Investing Early Provides Financial Flexibility

Starting early gives you a head start towards building a more flexible financial life. You can concentrate on fulfilling all your financial goals one by one. Further, It will also help you escape the 9 to 5 work-life and make you financially independent, which means that you no longer have to depend upon the paycheck. You can rely on the return, which is generated from your investment to pay up your expenses. 
Through their investing habits, some investors have shifted their primary source of income from their monthly paychecks to the returns from the portfolio. Don't you want to be one of them? 
Are you still confused about something? Drop a comment because questions are the first step towards learning. 

Final Thoughts

Furthermore, there is a lot more one can learn through investing. Sometimes a hard lesson sometimes a delicate one. But an experience which can be taught by none. Despite what is said, one can not deny that "It is better late than never." So what's stopping you? Right now is always the best time.

About the Author: Varishika Dinesh | 43 Posts

Varishika is on the verge of successfully completing B.Com. Nothing excites her more than reading books and watching movies. Business, finance, economy? You have her attention.

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