Early investing helps you develop better spending patterns
Learning how to save and invest early automatically helps improve your spending patterns. The rationale is simple: to save and invest, you need to cut back on expenses. To start investing early, you have to draft a monthly budget, categorise your expenses, set spending limits, and allocate a fixed proportion of your income to savings. All this helps you recognise your spending patterns and track necessary and discretionary spending. Tracking and assessing your spending patterns over the years helps develop a habit of curbing wasteful expenses. If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.
Use of the power of compounding
One of the chief benefits of investing early is watching the magic of compounding unfold. Compounding is the process where your returns on an investment get reinvested to yield more returns. In other words, both your principal and reinvested returns earn profits. Compounding works best when given ample time. Starting your investment early ensures consistent reinvestment of returns, allowing your funds enough time to grow and compound.
You have a better risk-taking ability
When you start young, you have the advantage of time on your side. Moreover, young investors usually have fewer responsibilities and financial commitments, which means they can invest more and take greater chances. A long-term horizon means you can invest in high-risk equities that offer potentially higher returns than fixed-income assets. For instance, if you start investing at 25, you can dedicate 75% of your portfolio to equities (applying the 100-age thumb rule of investing) and the rest to fixed-income assets. But if you start investing at 40, you can dedicate only 60% of your portfolio to equities. One of the key benefits of investing early is that despite their higher risk quotient, equities can help you build a substantial corpus with relatively small investments over time.
You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.60% p.a.
Reduced investment expenses
In certain cases, investing early can also reduce the total investment cost. Life insurance is the best example of this benefit. Life insurance plan premiums depend on the age of the policyholder. Underwriters quote lower premiums for younger individuals since they are considered healthier and, therefore, low risk. Thus, by investing in insurance early, you can lock in low premiums for the rest of your life. You can opt for a pure term plan or choose an insurance-cum-investment plan like ULIP. In either case, you benefit from investing early.
More recovery time
Investing early does not mean you won’t incur losses. It simply means that even if you lose on certain investments, you have ample time to recover the loss and mint profits. Losses may be due to your inexperience as a young investor or market volatility. Regardless of the cause, you can review your investment approach and manage losses over time. Conversely, if you start investing later in life, you will have less time to recover from such losses. At this stage, you have to make the most of the time available at your disposal and cannot afford capital loss.
Likelihood of retiring sooner
The perk of enjoying an early retirement is one of the primary benefits of investing early. If you start early, you can accumulate a sizable retirement corpus by the time you turn 50. Prudent investment in a diversified portfolio of assets helps you amass enough to easily meet your living costs without working. However, if you start later in life, you may have to work until you’re 60 or 65 to build a sufficient corpus for your retirement years.