As and when you start earning money we advice that you should start investing, we meet many people while asking about investment most casual answer given was “Abhi to kafi time hai retirement ko…Abhi kafi life baki hai “ (They still has lot of time before reaching retirement and still many year are about to come).They may be right that there may be lot of time remaining for retirement date, but to postpone investment because of this reason is not right. Postponing investment decision always make adverse effect on return of investment or capital growth.
You have 1 lac as ideal amount at the age of 26, you keep that money in saving bank account which provide returns of 4%. You keep that money as it is and invest that amount in FD which will provide 9.5 % returns at age of 30. So for 4 year (26 year-30 year) you have earned only 4% return on investment (yoy) of 1 lac which is 16000 Rs/-.
While after placing this amount in FD after 30 Year of age you will be getting return on investment (yoy) of 1 lac which is 38000 Rs/- (for Four year). At age of 34 year this 1 lac amount will grow to 1 Lac Rs/-(Principal) + 16000 Rs/- (Saving bank retrun)+ 38000 Rs/- (FD return) = 154000 Rs/-
You have 1 lac as ideal amount at age of 26 and you invest this amount in FD for 5 year at age of 26 which provide 9.5% returns than you will get 160000 Rs/- at age of 31 year only.
From above example it is quite clear that with early age and right investment avenue one can get good return on investment.
The benefit of start early in investment is that you can gain from compounding effect. The time has value. What is compounding effect? For example, 2 x 2 = 4, 2 x 2 x 2 = 8, 2 x 2 x 2 x 2 = 16 … The result list will be 4, 8, 16, 32, 64, 128, 256, 512 and so on. From 4 to 8, the difference is 4 while from 8 to 16 the difference is not 4 anymore but 8. The difference is not jumping in same number, but it is jumping in higher and higher number each time.
We can say that compound interest is the eighth wonder of the world. Capital will generate interest. The interest will then add up into the capital to generate another new higher interest. The process will continue. There is interest on interest in addition of original capital. The interest will become higher and higher. This is compound interest.
The earlier you invest the more you can benefit from compounding interest; this is exactly why investing early is so critical. People often ask about what is the best investing strategy, the answer is best investing strategy is to invest early!