Why you need to start investing
There are some things in life that are good to do. Then there are some things that are a ‘must do’. Investing falls in the latter category. Here are a list of reasons why you must start investing and also start your investing journey early.
It puts you on track to achieving your financial goals: Dreams and aspirations become a part of you from an early age. At first, they are all about buying the perfect bicycle or acing a test. Over time, they become bigger and more concrete. Every one of you probably dreams about buying their own house, driving a new car, giving your children a great education, and even having a comfortable retirement period. To achieve each of these dreams, you need to have money. Now, the thing is that, unfortunately, most people don’t earn enough money to actually achieve all their dreams. So, does that mean you should just give up. No. What you can actually do is save and invest your money. When you do this, you ensure that after a certain period of time, the money that you save and invest will grow into a substantial corpus. A sum that you can then use to accomplish your financial goals.
It becomes your friend in need: If there is one thing that is certain in this world, it is that life can be uncertain. You never know what tomorrow has in store for you. An unexpected health or medical emergency can be a big drain on your savings and derail you from your financial plan. Thus, it is absolutely imperative for you to create an emergency fund that can come to your rescue in your time of need. Now, just keeping your money under the pillow will not solve this problem as inflation will erode the value of your savings. Instead, you need to invest your money in safe and liquid investments that can generate some returns, are safe from capital erosion, and are easily available to you.
The early bird gets the worm: If you want to create long-term wealth, then equities can be a great investment vehicle. However, it is well-known that equity markets can be highly volatile in the short-term and impact your ability to both make sound investment decisions and benefit from the wealth creation potential of equities. Thus, if you really do want to secure your future and achieve your financial dreams, then it is important for you to not only start investing but also start investing as early as possible. When you start investing early, you are better positioned to invest for the long-term and ride out equity market volatility.
Further, investing early also gives you an opportunity to benefit from the power of compounding. Dubbed as the ‘eighth wonder of the world’, compounding is a mathematical process that ensures that both the principal amount invested and the interest earned on an investment, generate returns. For example, assume that you invested Rs. 1000 at 10% interest per annum. Now, at the end of year 1, you will earn 10% of Rs. 1000, i.e., Rs. 100. Now, at the end of year 2, you will earn 10% of Rs. 1000 (your principal amount) and 10% of Rs. 100 (the interest generated in year 1). As a result, at the end of year 2, your investment will be valued at Rs. 1210. Over a period of time, due to compounding, the value of your investment will grow exponentially, and you will be several steps closer to achieving your financial dreams.
Frequently Asked Questions
1. How does starting early in investing benefit me?
Starting early allows your investments to benefit from compounding, where your returns generate further returns over time, leading to exponential wealth growth.
2. What are the key factors to consider before making my first investment?
Assess your financial goals, risk tolerance, and investment horizon. Understand the types of investment options available and ensure you have an emergency fund in place.
3. How can investing help me achieve financial independence?
Investing helps grow your wealth over time, enabling you to achieve milestones like buying a house, funding education, or retiring early without relying solely on active income.
4. Is investing risky, and how can I minimize these risks?
While all investments carry some risk, diversifying your portfolio across asset classes and investing according to your risk tolerance can help minimize potential losses.
5. What is the role of inflation in determining the need to invest?
Inflation erodes the value of money over time. Investing allows you to grow your wealth at a rate higher than inflation, ensuring your purchasing power remains intact.
6. Can small investments make a difference in the long term?
Yes, even small, regular investments can grow significantly over time due to compounding, making it important to start with whatever amount you can afford.
7. How does investing differ from saving money in a bank account?
Saving in a bank account offers safety and liquidity but limited growth due to low interest rates. Investing provides higher returns over the long term, helping you grow your wealth faster.
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