Top Reasons Why you Should Start Investing as Early as Possible

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Ask any expert in finance about when you should start investing, and it's quite likely that the answer will be this –
"You should start investing as early as possible."

In fact, every beginner-friendly investment course or video out there echoes this advice. And it's solid advice too, because you should start investing as early as you can.

Top Reasons Why you Should Start Investing as Early as Possible - ABSLI

But have you ever wondered about why you need to do this? What is the real reason behind getting started on your investment journey in life? And how can it benefit you in the long run? Well, if these are the questions you have today, we bring you all the answers.

And as always, let's get right into the thick of things.

Compounding: The number one reason to start investing early

The magic of compounding is an open secret in the world of investments and finance. Everybody knows that it helps money grow exponentially, but few ever take advantage of it in the right manner. We'll help you do that, but first, let's see what compounding is, and how it works best if you start investing early.

What is compounding?

Compounding is the process by which the interest you earn on your principal also earns some interest. In other words, you earn interest on your interest. This helps the overall value of your investment increase exponentially over time.

Here's a very basic example to show you the difference between simple interest and compound interest.

Particulars

Simple interest

Compound interest

Initial principal

Rs. 1,00,000

Rs. 1,00,000

Rate of interest

5%

5%

Interest for year 1

Rs. 5,000
(Rs. 1,00,000 x 5%)

Rs. 5,000
(Rs. 1,00,000 x 5%)

Total investment value at the end of year 1

Rs. 1,05,000
(Rs. 1,00,000 +
Rs. 5,000)

Rs. 1,05,000
(Rs. 1,00,000 +
Rs. 5,000)

Interest for year 2

Rs. 5,000
(Rs. 1,00,000 x 5%)

Rs. 5,250
(Rs. 1,05,000 x 5%)

Total investment value at the end of year 2

Rs. 1,10,000
(Rs. 1,05,000 +
Rs. 5,000)

Rs. 1,10,250
(Rs. 1,05,000 +
Rs. 5,250)

Interest for year 3

Rs. 5,000
(Rs. 1,00,000 x 5%)

Rs. 5,512.50
(Rs. 1,10,250 x 5%)

Total investment value at the end of year 2

Rs. 1,15,000
(Rs. 1,10,000 +
Rs. 5,000)

Rs. 1,15,762.50
(Rs. 1,10,250 +
Rs. 5,512.50)


So, you see how the rise in the value of investment is higher each year in the case of compound interest? Now, let's see how compound interest works best if you start investing early.

The magic of compounding: An illustrative example

Let's take a look at 5 people, all of whom wish to retire at 55 years of age. We'll call them A, B, C, D and E.

  • Person A, being quite late to the party, starts investing only at the age of 45.
  • Person B begins his journey five years before person A, at the age of 40.
  • And so it goes, with person E, being the smartest of all, starting his investment journey at the age of 25 years itself.
  • Each of them invests Rs. 10,000 per month, for the entire investment period.

Let's see how their money grows over that time.

Person

A

B

C

D

E

Age at the time of the first SIP investment

45 years

40 years

35 years

30 years

25 years

Retirement age

55 years

55 years

55 years

55 years

55 years

Investment tenure

10 years

15 years

20 years

25 years

30 years

Total amount invested (INR)

12,00,000

18,00,000

24,00,000

30,00,000

36,00,000

Rate of interest

8%

8%

8%

8%

8%

Final investment amount (INR)

18,41,657

34,83,451

59,29,472

95,73,666

1,50,02,952

Growth ratio

1.53

1.93

2.47

3.19

4.16


As you can see, person A's investment grows just 1.53 times over the course of 10 years. But person E's investment grows 4.16 times because of early investment, thereby giving the initial capital more time to grow. That's because the longer your investment, the better compounding works. And that's truly the best way to create wealth over time.

How to make the most of compounding?

This three-step checklist will help you make the most of the magic of compounding.

  • Start investing early.
  • Remain invested for a long period.
  • Be consistent with your investments.

Other reasons to start investing early

The magic of compounding is one of the key reasons to invest as early as you can. But starting your investment journey earlier in life also gives you many other advantages. Check them out below.

  • More time to recover losses

    Investing early gives you the opportunity to recover any losses you may make early on in your investment journey. For example, if you start investing at 21 years and make a massive loss when you are 25, you have around 30+ years ahead of you till retirement. That gives you ample time to recover your losses.

  • Lower investment costs

    In some cases, investing early can also bring down the cost of investment significantly. Life insurance plans are an excellent example for this. The younger you are when you buy a life cover, the lower your premiums are likely to be. 

    You can take advantage of this and invest in a term insurance plan like the ABSLI DigiShield Plan or take greater risk and invest in a ULIP i.e. ABSLI Wealth Assure Plus at a younger age, so you get the double advantage of an affordable premium coupled with a life cover and investment benefits.

  • Better risk taking ability

    When you are younger, your risk appetite also tends to be on the upper end of the spectrum. This leaves you in a better position to invest in high-risk options like stocks or equity mutual funds, which also have the potential to offer higher, inflation-beating returns. If you start investing much later in life, you may find yourself gravitating towards safer investment options like debt instruments, which offer lower returns.

  • Option to retire earlier

    Starting your investment journey also allows you to retire earlier in life, if you want to. This is because you may have accumulated enough wealth by the age of 50 or so, and you may no longer find it necessary to keep working to earn for your daily needs or for your life goals. This luxury may not be attainable if you start investing later in life.

Conclusion

All things considered, there are many advantages that you get to experience if you invest at a younger age. The best part is that you don't even need much to get started. There are SIPs where you can invest as little as Rs. 500 or Rs. 1,000 per month. As you grow older, you can increase your investment amount accordingly.

So, if you haven't begun investing yet, there’s no time better than now. As they say, the best time to start investing was yesterday. The second best time is now.

Read next: EVEN RS 500 CAN GO A LONG WAY OVER THE YEARS. HERE'S HOW.

You don't need a lot of money to start investing early in life. In fact, even an amount as small as Rs. 500, when invested consistently, can go a long way over the years. Wonder how that would work? We have a blog that gives you the finer details of how small amounts can help build a large corpus.

Read it here

GET YOUR LIFE COVER EARLY IN LIFE AND LOCK IN ATTRACTIVE PREMIUM RATES

It's no secret that the younger you are when you get your life cover, the lower your premiums will be. So, why not get your life cover as early as you can? The ABSLI Assured Savings Plan allows you to get your life insurance coverage with flexibility of multiple payment terms.

In addition to that, this savings plan also gives you the benefit of guaranteed maturity or death benefits, the option to include your spouse under the policy, as well as a wide range of additional riders to enhance the protection you enjoy.

Know More

ABSLI Assured Savings Plan (UIN: 109N134V02) is a non-participating traditional insurance plan.
ABSLI DigiShield Plan (UIN 109N108V07) is a non-linked non-participating individual pure risk premium life insurance plan; upon Policyholder's selection of Plan Option 9 (Level Cover with Survival Benefit) and Plan Option 10 (Return of Premium [ROP]) this product shall be a non-linked non-participating individual life savings insurance plan.
ABSLI Wealth Assure Plus (UIN: 109L120V02) is a non-participating unit linked life insurance plan. IN THIS POLICY THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
ADV/1/21-22/2062

Author

Term Products

ABSLI Life Shield Plan

A term insurance plan that offers you the flexibility of plan options suitable for your family's non- negotiable goals and ensure they need not compromise on their lifestyle. UIN: 109N109V06

  • Choice of 8 plan options
  • Cover your spouse under the same policy
  • Longer Life cover till age 85

ABSLI DigiShield Plan

PROTECTING multiple life needs with one plan is now possible. UIN 109N108V08

  • 10 Plan Options to suit your varied protection needs
  • Flexible death benefit pay-out options
  • Life insurance cover for 1 year or till age 100 yrs

ABSLI Saral Jeevan Bima

A simple plan to protect your family’s financial future (UIN 109N128V01)

  • Simple & affordable plan
  • Flexible premium paying terms
  • Enhance insurance cover with rider

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