When you are young, you think you do not have enough money to invest. Your initial steps into the working world also come with more expenses. Now that you finally have the money to buy that cell phone, TV or the car you always wanted, your salary or income disappears faster before you realize. Keeping some money aside for investing may feel unimportant. So you may think why not start investing a few years later when you have more money to spend and save? Unfortunately, this cycle never ends. By the time you realize the importance of investing, you may lose the advantage of time by your side.
Of many advantages in starting to invest early, three of them stands out due to the long lasting impact they make, compounded returns, ability to make mistake early with low capital and to attain financial freedom sooner.

Compounded Returns:

Following table provides the returns generated when someone invested 1 Lakh amount when they are at 26 years old and at 40 years old. Let’s assume annual compounded returns at 12% (Most Indices generate this return in long run).

Corpus at the age of retirement (60 years old) will be ~52 Lakhs for the person who started at 26 years of age vs ~10 Lakhs for the person who started at 40 years of age. This is purely because money is making money and given more time, returns will be much higher. Most of us don’t realize it sooner and regret in mid to late 30’s on missing to start early.



Ability to make early mistakes with low capital:

When you are young, financial responsibilities will be relatively lesser. So you can attempt different asset classes for investment (Not necessarily all investments will yield positive returns). Capital at hand will also be less for young people. So even if there mistakes in investment decisions, losses will also be less and this will be a good learning experience to guide one in future decisions.

Financial Freedom:

Most of the people do not understand what “Financial Freedom” is, ever. Those who understands it, won’t be able to achieve it. When money is in back of your mind, it will withhold you from doing many things, let it be buying the thing that you always wanted to own or taking trips to locations you dreamt of or not being to depend on anyone for finance. When money is no more a factor, one’s imagination will find its wing. This may seem obvious, but most will not implement this in life. Rich get richer with time. That is because they exactly know how/where/what to spend time on. When you start investing early in right asset classes and stay invested for long time, achieving financial freedom is not that difficult.

Following are other reasons that highlights why one should start investing early.

• More Recovery Time
If you invest early and incur a loss, you have more time to make up for the loss on investment. Whereas, an investor who starts investing at a later stage in life, will get less time to recover his losses. Thus with early investments, your investment gets more time to grow in value.

• Save More
With early age investments, you develop a habit of saving more. The more you invest, the more you get in future. To follow that thought process, you tend to save more by cutting on unnecessary expenses and divert such saved money towards investment.

• Improves Risk Taking Ability
Studies prove that young investors have more risk-taking ability than older ones. Adult investors are generally conservative and prefer stability, in turn avoiding high-risk investment avenues. There is an old saying, “More the risk, more is the reward”. The probability of earning handsome returns at a young age gets enhances with high risk taking ability.

• Time Value of Money
Early investments lead to compounding returns. The time value of money increases over a period. Regular investments made right from an early age can reap huge benefits at the time of retirement. Moreover, early investment facilitates your entry in the world of finance early. Your money grows with time. Because of early investments, you can afford things, which others might not, at that age. This puts you ahead of others who prefer investing at a later stage of life.

• Secured Future
There will be times in life when you will need urgent money to meet unavoidable expenses. During such times, the investments made at an early age can prove to be very handy and will help you get through the tough times all by yourself. The need for borrowing money from others decreases drastically with early investments.

• Become a Creditor
An early age investment is indeed useful. When you have surplus money invested, you will never have a need to borrow money and become someone’s debtor. With money parked in the right investment avenues at the right age, you have money to lend to others i.e. you become a creditor.

• Support Your Retirement Plans
Early age investments increase the probability of reaching financial stability at a young age. Saving for retirement from the age of 20s rather than the age of 40s is always a better idea. Life after retirement is more challenging than it has ever been, so planning for retirement now will lead to happier life after retirement.

Now that you understood the importance of investing early, what are the next steps?

• Do a net asset value assessment for yourself



• Understand your risk taking ability

• Learn about pre-conditions before starting investing



• Learn about different asset classes and their potential risk rewards



• Identify your long term goals

• Plan your investments that you achieve your long term goals on time

• Lead a financially stress free life and focus on other things in life