Almost all individuals realise the importance of investing and the perks of financial planning, yet most of them are dubious to begin their investment journey. However, is it that bad? Shouldn’t one be allowed to enjoy their lives before they have bombarded with financial commitments to look after their families? Indeed, one should enjoy their young age to full extent. However, too much of reckless spending since a young age can cause a dent in your financial goals.
When you begin to invest early, you secure the benefits of compounding. It is a polynomial function with the amount of years denoting the degree of the polynomial. In simple words, compounding ensures that your money works to make more money for you.
What’s more, when you are young, you are more welcoming in undergoing risks. This is because young investors have two of the best things on their side – ample of time and fewer responsibilities. With ample time, one has the opportunity to smoothen the volatility associated with equity investments over time.
How planning early can result in higher wealth creation?
Following are some of the reasons why one must consider investing early and build their corpus:
- When you invest your money for a prolonged period, the market cycles tend to smoothen over time. This aids investors to overcome the short-term volatility associated with mutual fund investments in the stock market.
- The power of compounding tends to work at its maximum potential when you invest for a long run. It’s interesting to note that the return ratio of lumpsum investments is usually higher than SIP investments thanks to the power of compounding. This is because the holding period of lumpsum investments is higher than that of SIP investments.
- When one invests for a longer duration, it becomes easy for fund managers to produce stable CAGR (Compound Annual Growth Rate) returns. Additionally, a longer investment horizon usually equates to better returns.
- Note that if you opt to go forward with the growth plan for your mutual fund investments for a prolonged period, both the principal amount and the intermediate returns are reinvested. Hence, the longer the holding period, higher is the tendency to produce significant returns.
- Experts have noticed a tipping point in stock markets that usually happens around 15 years. After this point, capital appreciation is much more rapid.
Basically, investing from a young age might help you to become financially independent. It can also help you meet your financial objectives earlier and further help you retire early. So, what are you waiting for? Invest early to fully benefits from the power of compounding. Investors have the liberty to choose from the different types of investments offered to them. These include gold ETFs, stocks, mutual funds, money market instruments, bonds, etc. Choose investment options basis your risk profile, financial goals, and risk profile. Happy investing!