The not-so-secret recipe in wealth creation is the “power of compounding”. Compounding produces a snowball effect with money because the earnings each year contribute a little more to earnings the following year. As time passes, the earnings contribute more and more to the total value of an investment.

Consider you started investing Rs 20,000 each month at the age of 25. If your investment earned 12% annually, your investment of Rs 60 lakhs would grow to Rs 3.8 crores by the time you are 50.

If you keep investing the same amount for another ten years, your total investment of Rs 84 lakhs will become a massive Rs 12.9 crores.

That’s how the magic of compounding works!

The best way to take benefit of compounding is to start saving and investing wisely as early as possible in equity mutual funds aligned to your financial goals. The earlier you start investing, the greater the power of compounding will be.

2. Starting early can improve your spending habits:

Investing early helps you build a healthy spending-saving balance. With early age investments, you develop a habit of saving more. Since you have a financial commitment to your investments, you will have lesser disposable income on hand and will not make unnecessary expenses.

3. Learning and Experience:

Starting your investment journey early provides valuable experience. You’ll learn how to navigate market fluctuations, understand different investment vehicles, and develop a disciplined approach to saving and investing. This experience is invaluable and can set the foundation for more sophisticated investment strategies in the future.

“An investment in knowledge pays the best interest,” said Benjamin Franklin. The earlier you start, the more time you have to educate yourself and refine your investment strategies.

4. Lower investment costs:

Investing at an early age can bring down the cost of investment to an extent. For example, when one buys a life insurance cover, the rate of premium is likely to be lower if it has been bought at an early age. The same fundamental applies to term insurance plans and ultimately one can avail greater investment benefits if they adopt the idea of making small investments at an early age.

5. Improves risk-taking ability:

Your risk appetite is also more likely to be on the higher end of the scale when you are younger because you have relatively fewer responsibilities. This puts you in a better position to invest in high-risk products like equities or equity mutual funds, which may also provide returns higher than inflation.

Conversely, if you begin investing much later in life, you could discover that you tend to choose lower-yielding, safer investment alternatives like debt securities.

6. Meet your financial goals sooner:

When you start investing early, you reach your financial goals early, which can also include early retirement. Early investing can also help you in achieving your financial goals quickly, whether you want to buy a home or a car. Saving for retirement from the age of 20s rather than the age of 40s is always a better idea.

This is because, by the time you reach the age of 50 or so, you may have amassed enough wealth to no longer feel the need to work to support your daily requirements or your long-term aspirations. However, this luxury of early retirement may not be attainable if you start investing later in life.

7. More recovery time:

Investing early allows you to recover any losses you may make early on your investment journey. In other words, Early Investing gives time to investors to recover their losses before they retire and adjust their money in various schemes to ensure that they become profitable.

For example, if you start investing at 22 years and make a massive loss when you are 25, you have around 30+ years ahead of you till your reach your retirement. That gives you ample time to recover your losses.

8. Better prepared for adversities:

Having the security of saved-up funds can help you during emergencies. 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 not-so-secret recipe in wealth creation is the “power of compounding”. Compounding produces a snowball effect with money because the earnings each year contribute a little more to earnings the following year. As time passes, the earnings contribute more and more to the total value of an investment.

Consider you started investing Rs 20,000 each month at the age of 25. If your investment earned 12% annually, your investment of Rs 60 lakhs would grow to Rs 3.8 crores by the time you are 50.

If you keep investing the same amount for another ten years, your total investment of Rs 84 lakhs will become a massive Rs 12.9 crores.

That’s how the magic of compounding works!

The best way to take benefit of compounding is to start saving and investing wisely as early as possible in equity mutual funds aligned to your financial goals. The earlier you start investing, the greater the power of compounding will be.

2. Starting early can improve your spending habits:

Investing early helps you build a healthy spending-saving balance. With early age investments, you develop a habit of saving more. Since you have a financial commitment to your investments, you will have lesser disposable income on hand and will not make unnecessary expenses.

3. Lower investment costs:

Investing at an early age can bring down the cost of investment to an extent. For example, when one buys a life insurance cover, the rate of premium is likely to be lower if it has been bought at an early age. The same fundamental applies to term insurance plans and ultimately one can avail greater investment benefits if they adopt the idea of making small investments at an early age.

4. Improves risk-taking ability:

Your risk appetite is also more likely to be on the higher end of the scale when you are younger because you have relatively fewer responsibilities. This puts you in a better position to invest in high-risk products like equities or equity mutual funds, which may also provide returns higher than inflation.

Conversely, if you begin investing much later in life, you could discover that you tend to choose lower-yielding, safer investment alternatives like debt securities.

5. Meet your financial goals sooner:

When you start investing early, you reach your financial goals early, which can also include early retirement. Early investing can also help you in achieving your financial goals quickly, whether you want to buy a home or a car. Saving for retirement from the age of 20s rather than the age of 40s is always a better idea.

This is because, by the time you reach the age of 50 or so, you may have amassed enough wealth to no longer feel the need to work to support your daily requirements or your long-term aspirations. However, this luxury of early retirement may not be attainable if you start investing later in life.

6. More recovery time:

Investing early allows you to recover any losses you may make early on your investment journey. In other words, Early Investing gives time to investors to recover their losses before they retire and adjust their money in various schemes to ensure that they become profitable.

For example, if you start investing at 22 years and make a massive loss when you are 25, you have around 30+ years ahead of you till your reach your retirement. That gives you ample time to recover your losses.

7. Better prepared for adversities:

Having the security of saved-up funds can help you during emergencies. 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.