An early start gives you the extra mileage to plan for your retirement and many other things. Also, when you start early, your potential return on investment is much higher.
So, take advantage of your youth and start investing in your future. In this article, we will share with you six benefits of early investments.
When There Is Time, You Can Take A Risk
When you have time on your side while investing, there is a better opportunity to take some calculated risks. Volatile markets yield higher returns but are subject to market risks. So, when you have more time, there is always a better chance of recovery.
Usually, those who start investing late in life are inherently more cautious.
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The Importance Of Compound Interest
Compound interest is a leading factor when it comes to growth, as it is the interest earned on interest. So, when you constantly reinvest your earnings, you are increasing the return on investment.
That is why professional investors always advise you to make early investments in order to benefit from the potential gains of compound interest.
Let us look at an example of how time and compound interest are related.
Suppose you are 25 years of age and have decided to build your retirement fund by the time you reach 60. So you started putting in ?1000 per month for the next 35 years at a 12% annual return. The total amount you will receive at the end of the term is ?.64 lakhs.
Similarly, in another situation, let us consider that you are 30 years of age and have decided to invest for your retirement by the time you reach 60. Given your goal, you start by investing ?1000 per month for the next 30 years, at a return of 12% per annum. You will receive ?35 lakhs at the end of your tenure.
This is the power of compounding and early investing.
Early Investments Also Shape Your Spending Habits
When you start early, you learn to be disciplined while spending. Because now you have to budget all your investments and expenses within your earning limits. Impulsive buying and excessive spending habits are never good for you; to counter that, you should include healthy investment habits.
Be A Step Ahead
The earlier you start investing, the better your personal finance returns will be. Over time, you will see that you have much more available in your hands to take care of small or large financial goals. Investing early also helps you be prepared for the hardships of life.
Early Investments Lead To A Better Quality Of Life
Early investment reduces the risk of having to make a risky decision to secure your retirement. If, down the road, you want to invest in a house, an early investment will help you get financing for that.
The Ability To Start With Something Small
When you start early in life, you have the option of investing less than if you start later. A specific life goal could be completed earlier than you anticipate if you start investing early in your life.
Suppose you are planning to get married in, say, 5 years, and for that, you need ?10 lakhs. If you invested ?15000 every month in equity for 5 years, your total investment amount would be ?1008000 at 12% probable returns. Meanwhile, if you decide to start investing for your goal after two years, you will have to invest ?25000 every month, which is a considerable amount.
The Final Takeaway
Time is money. This proverb best suits the investment scenario. If you start early, it will be much easier to achieve your financial goals early in your life. If you have not started yet, start today, start small, and keep it simple. Wealth creation is a lengthy process, and you have to be patient.
This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.