Investment is truly a journey that goes through Planning, Budgeting, Saving, Investing and Discipline over a period of set milestones. Over the course of this journey Investors need to have patience and not lose focus towards the set goal.
However, lot of people have this dilemma about “When should I start investing”? Shall we focus on enjoying for the first five years of our working life as we have long time to think about investment? These are some common questions among many youths.
Instead of answering this question theoretically, a more appropriate approach could be to see the results or impact of starting at different stages of our life. A statistical understanding of this impact may give a clear understanding about the best time to start investing.
1. An adult starts their earning life / 1st job at the age of 22 years and aims to stop earning at the age of 60 years. So essentially, one could have an earning span of 38 years.
2. Investment gives an annual return of 10%.
3. Investment amount is stepped-up by 10% every year. i.e. If I am investing Rs.1000 per month today then after 1 year, I will invest Rs.1100 per month and so on.
PERSPECTIVE 1: The positive impact of starting early
Target Maturity Amount: Rs. 2 Crores
As shown in the graph, if a person starts investing at the age of 22 years, he/she needs to start with only Rs.1,200 every month to reach the goal amount of Rs.2 Crores. A delay of 5 years will mean monthly investment should start with Rs.2250, almost double. And, if one does not start till the age of 35 years, monthly investment needed will be more than 5 times of what was needed if started at the age of 22.
Hence, starting an investment plan right after getting our first job allows us to invest very small which may not be so difficult for most. We don’t even have lot of commitments at this age so saving small amount is easy.
PERSPECTIVE 2: The negative impact of starting late
Assume an investment of Rs.1200 per month irrespective of the age at which one starts. The maturity amount at the age of 60 years shows a significant difference based on the starting time.
One who starts at 22 years of age will accumulate Rs.2 Cr whereas, just 5 years of delay will mean only about 50% of the maturity amount (i.e. 1.06 Cr) will be achieved. If someone does not start till the age of 35years then maturity amount will be only Rs.38 Lakhs… which is significantly less.
Power of Compounding plays a huge role in deciding our maturity amount. Longer we invest, higher the returns could be.
START INVESTING AS YOUNG AS YOU CAN, IDEALLY FROM THE TIME YOU GET YOUR FIRST SALARY.
Even Rs.500 of monthly investment at the age of 22 years, with annual step up by 10 to 20% based on your affordability is a very strong start. Over time you won’t realise how these small contribution have turned big if invested with discipline.
Are you also one of those who did not start your investment yet? It is never too late, start it right away with as small as you can.