Young people may view investment as something difficult to understand and even though some do invest early in life, they do not think it to be urgent, one that can wait until they get a bit older. However, investment is all about urgency, and if an opportunity is at hand, it is best to seize it because one could lose what it is offering if that chance were to be ignored. A look at the benefits of investing early can be understood with the below example.
Suppose there are two friends of the same age – Robin and Peter. Robin starts saving Rs 750 annually from the age of 15 and until he reaches 30 years of age. On the other hand, Peter starts investing Rs 5,000 per year at age 30 and continues investing the same amount each year until he is 60 years old. If both earn 15% returns annually on their investments after deducting taxes, the one who will have more wealth when both retire at age 60 is Robin. His annual savings of Rs 750 between age 15 and 30 will aggregate to Rs 27.7 lakh by the time he reaches 60, whereas the annual savings of Rs 5,000 by Peter between age 30 and 60 will aggregate to Rs 25 lakh. One finds that both will have accumulated considerable wealth as per their investments, but for Robin to build his wealth, the difference in the annual investment amount and the fewer number of years required for making investments highlight the importance of investing early. The power of compounding is the singlemost important reason for a person to start investing early.
The need for making early investments has become crucial today because of the rising cost of living. Investment is not without risk, but investment is necessary if one wishes to enlarge the coffer for one's hard-earned money. Risks are equivalent to opportunities and in order to minimize the risks of losing out, one should take properly guided decisions while investing.