At what age should you begin investing?

Haven’t started your investing journey yet? Or perhaps, you’ve taken those first few baby steps towards investing into the stock market, but still haven’t charted out a plan for the years to come? Not to worry. Everybody has to begin at some point, right?

This begs the question - At what age can I start investing? 

Is there a magic number? Well, yes and no.

The answer to when to start investing is quite simple. You need to start investing as soon as it is practically possible. As we’ve seen before, the answer to this question may well just lie in this popular quip: The best time to invest was yesterday. The next best time is now.

Recall how we broached upon this subject in the chapter titled ‘The when and how of investing’?

The sooner you start investing, the more time you will have to make full use of the power of compounding. Not a fan of high school math? Don’t you worry. We’ll help you see how compounding can make a big difference to your investment.

The magic of compounding

What is compounding, really? It’s essentially the ability of your money to generate more money. To get into the specifics, think of it like this. When you invest some money, you generate some earnings, isn’t it? Now, if those earnings were invested back into the original investment, they will generate more returns, right? That’s how compounding works.

In other words, you would earn returns on your returns. Interest on your interest. Now, let’s take a look at some numbers to understand the effect of compounding.

Scenario 1: The early investor

Let’s suppose that you’re an early investor. In this case, you promptly begin investing the day you earn your first salary, at the age of 25. Here are the other details.

Scenario 2: The latecomer

Now, let’s say you put off investing for a later point in life. By the time you’re 35 years of age, people in your peer group have already charted out their investment plan. So, you decide to catch up. In that case, check out the details of what happens.

In both the scenarios, the total amount invested comes up to Rs. 21 lakhs. But in the first case, since you started investing 10 years earlier, you could have earned Rs. 1.71 crore as gains. By contrast, it is only Rs. 72.65 lakhs in the second case. See how compounding works like magic if you give it time?

Compounding is not the only reason to begin investing early. There are more advantages to being an early bird. Check them out below.

Other key reasons to start investing early in life

Here are 3 other key reasons investing earlier pays off.

1. You have more time to recover your losses

When you start investing early, you have the freedom to take advantage of risky assets, like investing into the stock market. After all, the more the risk, the higher the potential reward. But on the downside, the losses can be huge too. In case you suffer losses from your investment, you will have more time to recover your losses when you invest early on in life.

2. You can simply save more

It’s a no-brainer that when you start investing earlier, you can save more too. After all, time is on your side. So, you can invest a higher amount than what you could have, if you start later in life. And as you saw in the example above, compounding will work its magic on the amount you invest, so you can create wealth over time.

3. You can build a sizable retirement fund

Saving up for retirement should be a part of everyone’s financial plan. The best way to ensure that your golden years are truly golden is to secure your financial position. Once you’ve retired, the absence of a regular source of income can be stressful if you don’t have a sizable retirement fund to fall back on. And starting early can help you invest consistently to achieve this.

Wrapping up

So, at what age to begin investing. This chapter sums up the answer to that question. And it’s also helped you understand why it’s important to start early. Next up, we’ll take a look at one of your parents’ favorite investment options - fixed deposits.

A quick recap

• The answer to when you should begin investing is quite simple. You need to start investing as soon as it is practically possible. 
• The sooner you start investing, the more time you will have to make full use of the power of compounding.
• Starting early also means that you will have more time to recover your losses.
• You can save more, and you can build a sizable retirement fund too.