When it comes to investing, it is never too early to invest. Most of the individuals contemplate investing as the least important thing and hence never pay any heed to it in their initial earning years. Individuals especially youngsters usually spend all their monthly salary and are completely ignorant about investing. Some save a part of their salary but for them, the equation of savings goes like this: –
Income – Expense = Savings and Investment
But the ideal equation should look like this: –
Income – Savings = Expense
It may sound pointless to some individuals but it’s not. Investing only builds the path for the realization of one’s future aspirations and provides peace of mind. Those who understand it in time get the benefit of it and those who ignore it regret later in their life. Hence, it is imperative for everyone to invest as early as possible.
Further Reading: Top Five mid cap funds
Below are some of the benefits an investor stand to earn while investing: –
1.) Compounding pays off
Simply put, compound interest is the interest you earn on interest (that was earned previously on the investments). Compounding is considered as the eighth wonder of the world because it has the potential to grow your investments exponentially in the long run. Say for example, 1 lac invested @12% p.a. for 10 years and 20 years will grow to 3.10 lacs and 9.64 lacs respectively. Hence, it is in the best interest of the investors to invest as early as possible to benefit from the magic of compounding.
2.) More ability to take risk
Investing early gives investors the freedom to take on risk more aggressively. If we take an example of equity mutual funds that are more volatile in the short term but tend to outperform other asset classes as they are capable of generating superior risk-adjusted returns for the investors in the long run. Hence, if an investor starts investing early then he/she can allocate more assets towards equity and benefit from the higher returns generated by them in the long run.
3.) Procrastination will cost you
Putting off things for tomorrow is the common behavior of all the individuals. But it is necessary to understand that delaying investing can cost you big in the future. For example, an individual who is planning to go on a foreign vacation, let’s say after 20 years and the future cost expected for that vacation is around 20 lacs. So at an expected 12% return on investments, the person is required to invest approx. ₹2,000 p.m. But if the person delays investing by 10 years then to achieve the same goal, he/she has to shell out approx. ₹8,600 p.m. which is more than 4 fold increase.
4.) Quality of life will improve
Securing own future should be the topmost priority of every individual. Instead of diving into debt and living a life of luxuries in the absence of adequate income, everyone should earmark a certain portion of his/her monthly income towards savings and investments. Instead of paying others, one should pay themselves first. By investing early and regularly you will be able to improve your quality of life.
5.) Spending habits will improve
Most of the baby boomers are prodigal, and as a result, at the end of every month are left with no or very little savings. If an individual treats investing as his/her expense then he/she would be able to curtail his/her spending habits and the best way to do this is to initiate SIP (Systematic Investment Plan) and choosing the date near to the date of salary. So, as soon as your salary gets credited in your account it is automatically invested in the selected mutual fund scheme on a pre-specified date and henceforth left with a lower amount to spend.
6.) Secure Retirement
Having a peaceful retirement is the dream of every individual. But most of the individuals do not prepare themselves for it from the beginning of their careers and felt its importance only when they approach their retirement age.
That’s not to say that it is impossible to build a retirement corpus at a later age but yes the process could be very painful because then you will have less time to build a sufficient amount of corpus and you also have to meet other costs towards your children’s higher education and marriage, etc side by side.
7.) Less of worry
Investing upfront will give you a sense of security as you would be in a better position to meet your future liabilities. Planning and investing in advance will give you an advantage over others who think that they can tackle future requirements of money whenever the need arises.
8.) Sudden death of the bread earner
Unfortunate and untimely death of the sole bread earner can bring a hell lot of hardships for the family members. But if you have made savings in place then it might be of some help to your loved ones. Also, don’t forget to have adequate insurance cover.
Most of the investors if not all, generally focus only on the returns from any investment product. But it is important to note that returns are not the sole factor that grows your investments exponentially; time period is another important factor that is even more crucial than return. The reason why time period is an important factor is that the more the time, the more will be the compounding and hence, the more will be the value of your investments in the long run.
Hence, everyone should start investing as early as possible. It doesn’t matter how much you invest in the beginning but at least getting started with investments is more important.
Further Reading: HDFC fund