Why to start investing in your early 20s?

When you start getting your salaries at the age of early 20s, the adrenaline rush is at its peak. Hence, expenses keep mounting, and savings are null. In such a scenario, it is quite a daunting task to get excited about investing. However, if you are investing, there may not be much short-term satisfaction. Still, the results of your efforts will be realized clearly after you reach the age of thirty or forty.

(1) Your expenses are relatively low

Life is inexpensive at an early age and, as you age up, expenses keep inflating with increasing responsibility. Your bills are less, you might be sharing your flat with other inmates, don't have any financial liability, don't have a family to take care of, and many other aspects are absent. This means that your monthly expenses will be relatively low.

So, the best thing you can do with your money is to take advantage of your youth and start investing.

(2) Power of Compounding Interest

Have you ever heard the saying, "Make money with your money."?

That is precisely what is referred to as compounding interest. If you are good at basic maths, you must know that the compound amount is directly proportional to time. This means, the more time you have, the more is the compounded interest.

When you start your professional career, all your life is relying upon is your paycheck. And, if you are not investing, it (your life) will only depend on it. But, for the other people and your colleagues who started investing early in life, the annual salary will easily be outpaced by their investment earning.

Let us take an example of two individuals, one of them starts investing an amount of ₹1,000 at the age of 25, but the other only begins at 35. Assuming a rate of return of 12% compounded annually for both, by the time they are 50, the former would have accumulated an amount of ₹17.9 lakhs while the latter would have accumulated only Rs.5 lakhs!

That is the power of compounding!

(3) Earn years of valuable Experience

Like you cannot become a top-class painter without spending tons of hours painting, you cannot become a wealthy and experienced investor without spending years of time and effort. There is no substitute or a short-cut for experience. The early you start, the sooner you get better at it.

In that case, when all your friends and colleagues will be learning to invest and lamenting the years they should have invested, you will be an experienced and wise professional.

(4) Formation of better financial habits

It can be the most challenging time or the most beneficial one when you start with your financial journey. That is the time when you begin building financial habits. While most of the people use this particular time to inadvertently form bad habits, spending more on worldly things, taking loans to buy something that they cannot afford, opening more credit cards because they live in the illusion that their credit score is more important than the net worth, you will be different. You will form maturity with finance, prosperity, and wealth-building habits.

Good investment avoids debts as they help to earn interest rather than paying. A good investor always looks to spend less and try to save as much money as they can to invest. Patience is another social dynamic that is formed along with other good financial habits.

(5) You can tolerate higher risks

There is a pretty simple fact, i.e., the more time you have, the more financial risk you can tolerate. This is because having plenty of time gives you ample time to get rid of economic storms and recessions.

It does not mean that a 22-year-old person who has just started with his first job should go on the field, make a volatile and illogical investment. But when you have around 40 years in hand to retire, you have better chances that you'll make money on higher risk investments than someone investing for 5 or 10 years.

Understand that like compounding, volatile investment (high risk) tends to perform magic only in the long run.

(6) Early retirement

Early retirement is always fun to think of. Many people seek financial advice for retirement planning and investments so that they can retire early. However, the key to get early retirement and live a prosperous life after that is only possible through a first start.

You don't want to be that person who thinks of his retirement only after seeing their colleagues and friends retiring. You have plenty of time today, but it will only be a matter of time when it will slip through your hands. Therefore, the sooner you start investing, the earlier retirement will be an option in your hand.

How can you start your investment?

Now that you know some of the significant perks of starting early investment, it is time to bring the best investment options available today, which has the most return rate. FD rates are decreasing rapidly. Hence it should not be considered as an option. If you intend to understand more about the FD rates, we recommend watching our YouTube Video.

Here is the link:

Then what are the other options available?

(a) Consider SIPs

Systematic Investment Plan, commonly known as SIP, is the best way of investment. You can choose your monthly plan for any amount you want to invest according to your savings and get started. You don't have to be concerned about disbursing every month as your funds will automatically get deducted from your bank account. In case you could not pay for a month of two, you will not be penalized for it and your SIPs will start deducting when you have funds in your bank account.

However, a lot of people misinterpret the SIP. SIPs are the most flexible mode of investment that help you to maintain regular saving habit and can give you high returns depending upon your portfolio and the maximum risk you can take.

(b) Diversify your investment

Diversification of your investment early in life is one of the best things to do. However, when you have ample time in hand, you are eligible to take a certain amount of risk. Therefore, investment in the early 20s should depend on various risk levels. As you are eligible to invest in high-risk funds, it is suggested that you do not invest all your money in high-risk funds. The diversification of funds should always be done.

Some amount should be invested in areas where there is low risk, some in average risk, and so on. However, with increasing risk percentage, the amount of investment should also be decreased. When the market delivers good returns, then the high-risk funds will bring you higher returns than low-risk funds.

(c) Consider ways to save taxes from the start

As a young professional who has just begun earning, you'll not know how important it will be to save taxes. However, as the day pass and you become more responsible, you will understand the investment of tax saving options.

So, it is always wiser that you start saving tax by investing in mutual funds. To take advantage of Section 80C of Income Tax Act, 1961, there is no better option than Equity Linked Savings Schemes (ELSS).

Given below are some of the best ELSS mutual funds that you can consider investing:

Final Words

Investing at a youthful age is the smartest and wisest decision of your professional life. You will provide yourself with a means of retiring and have a secure and life full of freedom in your hands.

With more time in your hands to take recession and all the negativity of the market, you'll be free to invest in higher-risk funds, which means that you will eventually earn more returns. Today, you have many investment options to consider, with the best one being mutual funds.

The market today has every variety of schemes that will suit all the type of investors. In case you are looking forward to investing, SIPs can be your best friend that you can make. Also, consider an investment option that comes with tax-savings schemes so that you can also save taxes and continue with investment, simultaneously.

Start as early as you can to compound your money as much as possible.

Happy Investing!