Investment for Students – Why you should start Investing in your Early 20’s
In your early 20’s, if you start keeping a portion of your earnings aside will surely lead to your financial success in the future. Creating investment habits will definitely reward you with a stress-free financial future. So in our first blog regarding financial education, we will tell you the potential of investing in your 20’s.
Benefits of starting investing in your Early 20's -
First of all, we will tell you the benefits that you can attain by starting early investing.
The longer money is put to work, the more wealth it will generate for you.
We will tell you how –
Albert Einstein referred to ‘Compounding’ as the 8th wonder of the world. In very simple terms, Compounding is – When you receive interest on the interest.
Now we will explain it to you by using the example of ‘KATTU’ & ‘NATTU’ –
Case 1 – KATTU started investing at the age of 21, and he invested till the age of 60. KATTU invested ₹1000 for 39 years continuously. So, at the age of 60 years, KATTU generated a wealth of ₹1,05,33,674.
Case 2 – NATTU started investing at the age of 31, and he invested till the age of 60. ATTU invested ₹1000 for 29 years continuously. So, at the age of 60 years, NATTU generated a wealth of ₹31,21,205.
Shocked? This is how compounding works and it’s called the 8th wonder of the world.
The above returns are calculated @12% Interest rate.
Learn by Experiments -
One of the biggest advantage of starting early investing is that you can create strategies and perform experiments, as you have time to recover. Young investors have enough time to learn how to invest and learn from their successes and failures. Since the stock market works on the pendulum swings, so early investors have enough time to study markets and create their own strategies.
Can take more Risk -
The investor’s age directly influences his/her investing strategy. Early investors have enough time to earn ahead so that can hold up to 75% of Shares in their portfolio, instead of Investors at retirement age who can’t bear this much risk they should invest in Bonds or FDs. While young investors can bear more risk for larger returns.
The financial decision that you will make in your 20's is perhaps most important decision than any other time in your life.
Goal of investing -
Before you start investing first of all know what’s the goal of your investment. Is that for Short term goals like buying a house, car, etc? Or is your investing goal is for saving huge for your retirement. Based on your investing goal you should start investing.
If your investment goal is short-term like for 3-5 years then it will be better that you should keep it as cash. For such short-term goals, you can put aside little from your income depending upon the goal. This Is because the stock market is full of volatility. There are chances in the short term that when you want your money back it may be at its lowest.
If your investing goal is for a long time that you should prefer in your early 20’s, then you must take the advantage of compounding. For long-term goals, your portfolio must have a mixture of stocks, bonds, funds.
If you don't know anything about the share market but are still interested in investing and want to live a financially stress-free life then we will tell you how you should proceed with the stock market step by step by taking minimal risk.
We are not financial advisors/experts. We will just enlight you on a path of investing based on our experiences and books that we used to read for value- investing.