Posted At: Jun 27, 2023 - 661 Views
Photo CreditDarkshade Photos
One truth about money is that it's not meant to be saved. Money is meant to be Invested and starting starting to invest at a young age is an added advantage. Early investment teaches the real difference between investments and saving. Never think young age is a barrier to making an investment, as you are never too young to be financially free
With inflation on the rise, teens need to go beyond saving—they need to learn about growing wealth. A necessary aspect of managing money is how to earn and grow your money. Young people have a considerable advantage when it comes to investing because you have the potential to grow significantly more wealth if you start early. You can take advantage of technological innovations, take on slightly more risk, there's a higher risk-taking ability when you are young, you have the chance to take more risks than at a later stage in life. a
You might think that you need a lot of money to start investing, but it’s easier than ever to get going with small amounts. Once you set up your investment accounts, you’ll be well on your way to saving for goals like retirement, purchasing a home etc.
Higher risk-taking ability:
When you are young, you have the chance to take more risks than at a later stage in life. At this age, your financial responsibilities are less, so you don’t have to think too much before investing your money in a risky product. And even if you go wrong with your investments, you would have ample time to correct your mistakes and recover from it in the future.
For example, the thumb rule for investing in equity is 100 – your age. That is, if you are 30, then you can invest 70% in equities and the rest in fixed-income investments. Now, say you are 22 years old, then as per the thumb rule, you can invest up to 80% in equities. But if you start your investments at 45, you might not prefer to take that much of a risk and as per the thumb rule, invest only 55% in equities.
And even though equities are riskier than fixed income products, they have the potential to give you higher returns in the long run helping you to create a larger corpus for a smaller investment amount.
Compounding:
Perhaps the most significant benefit of investing when you're young is the impact that compounding will have on your portfolio. Compounding occurs when you reinvest your earnings, and those earnings begin to work for you. They earn you more money. This allows you to invest less each month from an early age to end up with the same amount during retirement, if not more.
Investment amount can be small:
It's easier to start small when you're young. Because you've more time to compound investment until your retirement, there will be no problem starting with a small amount of money when investing.
Let’s say your goal is to have $1 million by the time you retire at the age of 65. You earn an annual stock market return of 10%. You would only have to contribute about $190 a month to an investment account if you start at age 25 to reach your goal of $1 million by age 65.
You’d have to contribute over $500 per month if you wait until age 35 to begin investing. And you’d have to invest nearly $1,500 per month to reach your goal if you wait until age 45.
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