Today people are more interested to invest in various investment schemes and there are a variety of investment options available in the market. This is a good idea but most of the new investors invest a large amount of money at a time, thinking that this big amount will be doubled on someday in the future. But they don’t understand the importance of investing early.
It is advisable to invest small amounts of money regularly rather than a large lump-sum investment at a time later in future. Investing is defined as putting money into something in order to earn a profit, and this profit can be earned much easier if we start investing early. Investing at a young age is not always easy, requires much hard work and dedication, but the benefits are numerous and can not be overlooked.
The main reason for investing early relies is the benefit of compounding. Money has the power of compounding. And this fact is clearly understood by the concept of time value of money. We all know that as time changes the value of money overtime changes: the rupee available today has more value than the rupee available tomorrow. So the earlier you start the less you have to invest to reach your investment goal.
For example, two investors A and B invest their money at different periods of time. ‘A’ invests regularly Rs.5000 for about 10 years at the age of 25. Another person ‘B’ invests the same amount Rs.5000 each month for 25 years at the age of 35. Assume that their money grows at 15% interest per year. By the age of 60, the investor ‘A’ accumulates nearly Rs.4.6 crore while ‘B’ accumulates only Rs.1.5 crore.
Wonder how this can happen!? Compounding is the reason behind the difference in their amounts. Initially A’s money will grow at a slow rate. But once the money grows to a big amount the rate of growth will be very high! Thus the investment made early can result in a huge amount rather than an investment made later in life.