Start Investing As Early As Possible
Yesterday was the best day to start your investments. If you missed it, you should start investing today. The early you start investing, the better will be your chances of creating wealth. It increases the chances of the wealth getting an exponential rise due to the power of compounding. Here is a famous saying:
Early investing is very much like growing a tree. If you take good care of it at the start, it will take care of itself later.
Let’s understand the above statement with the following example:
Imagine two friends Ramesh & Suresh. Ramesh invests Rs 1000 per month for 30 years and Suresh invests Rs 2000 per month for the first 10 years then just let it grow for next 20 years.
Considering an interest of 12% per year, Suresh is going to generate 45 lakhs at the end of 30 years, investing only 2.4 lakhs for first 10 years. However, Ramesh will generate only 36 lakhs despite of investing 3.6 lakhs over the period of 30 years.
Thinking how can that happen? That’s because of the interesting concept of “compounding”. Over the long-term, the compounding returns of a well-chosen investment will add up nice despite any fluctuations.
However, it is safe to start saving initially and then get into investing. One should plan sufficiently for all their basic expenses (immediate & short term expenses) and then start investing with the remainder. One should not over invest cutting down their basic necessities.
Invest at Every Age
It is important for everyone to keep investing their surplus money at every stage of their life. However, the risk one is willing to take and the style of investing mostly changes from time to time. At any stage diversifying your portfolio and maintaining discipline is very important to maintain the balance. Take a look at the following strategy as an example:
- A 30 year old may/can take more risk and start investing in equities for mutlifold returns over long-term (15-20 years). This is the age to aggressively invest as any temporary declines in your capital won’t hurt much because you have years to recoup any losses. At this stage of life, your portfolio can consist of 40-60% equities, 30-15% mutual funds, 20-10% fixed income investments for regular expenses and little liquid cash as per your needs.
- When you’re 40, if you want to be a little safe, the same portfolio can me modified and allocate your money accordingly. Example: Your portfolio can look like 30-40% equities, 40-30% mutual funds, 30-20% fixed income investments.
- When you’re nearing your retirement, one can play safe and invest more in fixed income instruments and very less portion in equities.
I recommend you to read our articles on Why, Where and How to invest if you’ve not read them yet. These articles are interlinked and will give you holistic idea and help you gain basic knowledge on investing.