Why should you invest at a young age?

Why should you invest at a young age

Many youngsters today have lost the habit of savings which their father and Grand Parents did during their life time. While the mode of savings may differ the fact is they did save for themselves and their family. But today the youngsters are eager to spend money rather than save it which creates problems in future. A proper financial plan will make sure one does not end up in financial trouble when people age and retire. 

When people are working they do not think of life post retirement and live the moment. While that may be easy and convenient during that time it is bound to bring pressure on one’s finances requiring the individual to work even after retirement or lead a life with minimum commitments. This is where investing early and having a proper plan helps an individual to lead a comfortable life post retirement. 

In this blog we will discuss some of the effective ways to plan your future by starting to invest at a very young age.  

Start Investing Early   

Many young people start their work in the mid twenties and to begin with salaries are not very high. That acts as a first deterrent to start investing. Youngsters must understand that they need to cut off their unnecessary expenditure and focus on saving their hard earned money. This early investing approach will help them to reach their financial goals. Similarly for every goal, be it for buying a house if you start early then the monthly EMI’s will be much lower as the payment is staggered over a Number of years.  and the total investment amount would be much lesser than if you delay the goal. 

So having a proper investment plan with exposure to equity will deliver superior risk adjusted returns in the long run. Any one who had invested Rs. 10000/- per month in Infosys which got listed at Rs.96/- Levels would have been surprised to see the stock trading at Rs.12000/- per share during the dotcom boom. This shows starting early would have made you richer quickly than anticipated by you provided you invest with discipline and have the best financial advisor to guide you. 

Some Benefits of Invest at a young age?

  • Early Retirement Dreams: Investing young can help you retire early and enjoy life on your terms.
  • Capitalizing on Compound Interest: The longer you invest, the more you can benefit from the power of compound interest.
  • Tolerance for Risk: Young investors can afford to take on more risk, potentially leading to higher rewards.
  • Funding Big Life Goals: Investing early can help you fund major life goals like buying a home or starting a family.
  • Learning Opportunity: Investing is a great learning opportunity for financial literacy and decision-making.
  • Reducing Financial Stress: Young investors build financial security, reducing future money-related stress.
  • Becoming a Financial Role Model: Setting an example for others and promoting financial responsibility.
  • Exploring Diverse Investments: Young investors can experiment with a variety of investment types.
  • Weathering Market Fluctuations: Time can help you ride out market ups and downs, minimizing potential losses.
  • Taking Advantage of Tax Benefits: Some investment accounts offer tax advantages for long-term investors.

Improves Savings Habit 

If an individual makes the habit of investing early on when he joins a job it will automatically improve the spending habit. The first step towards saving your money is to first put restrictions on your spending. By avoiding unnecessary spending and saving your hard-earned money you make it a habit which will take care of your financial security and your long-term financial goals. 

Make Small Investments 

For any individual who believes that his salary is low then such individuals can opt for SIP in stocks . People can invest small sums based on their Income profile still save decent money to meet their financial goals. 

Higher Risk-Taking Ability 

Many Studies have proved that young investors generally have more risk-taking ability than older ones. Investors who are old are generally conservative and prefer stable income, and generally avoid high-risk investment avenues. There is a famous statement which says that “Higher the risk higher the reward “. The probability of earning handsome returns at a young age gets enhanced with high risk-taking ability. 

Accumulate Large Corpus

Hence, it’s always beneficial for any individual to start early and stay invested for longer periods of time to accumulate a large corpus without feeling the pinch in their pocket apart from not compromising on their standard of living.  

Enhanced Equity Allocation

A simple rule of thumb when people invest in equities is the thumb rule of 100 minus your age. Any youngster who is at his mid 30’s can have higher exposure to equity. However, it also depends upon the risk-taking ability of the individual. It is usually better to take higher equity exposure at a younger age and reduce it when one grows older.  

To sum up 

It is always advantageous to start early to attain our financial goals. By avoiding wasteful expenditure investors can increase their savings and wealth.A larger corpus can be accumulated when we start investing early. A higher exposure to equity at a younger age helps an individual to accumulate a large corpus.  

Happy Investing!!! 

Team Wealth Step Research