START NOW
A friend who holds a Ph D in Artificial Intelligence from the University of Leeds mentioned about his PhD theses based on a research on sleep. They found that the now clichéd “early to bed and early to rise; makes a wo/man healthy, wealthy and wise” makes lot of sense.
And the magic word here is “early” which has long proved its worth in financial management too. The earlier in life you realise the importance of putting your money in the right places, the more comfortable and wealthier will you be.
SAVE MORE
Let’s do some very simple calculations. Imagine a situation. Neil saves Rs 1000 every year. He is 23 years of age and works as a trainee with an advertising agency. Not considering inflation or post-tax returns, he will be able to save Rs 37,000 by the age of 60. Now Neil’s friend Abhi is 30 years of age now. He starts investing Rs 1000 every year. Under similar circumstances, he would have saved Rs 30,000 by age 60.
If Abhi wants to have as much as Neil, at the age of 60, he will have to save more every year. He’ll be deprived of some luxury every year as he puts that extra amount in the piggy bank. So if you start early you end up saving much more.
This has been done in very simple terms. If your money is invested, and if we take inflation into consideration, it grows regularly. And the amount, by which it grows, also grows. So suppose you invest Rs 100. If it grows by 10 per cent every year, at the end of the year this Rs 100 will become Rs 110. Now in the following year, you will get return on Rs 110. So the 10 per cent which you got in the first year as return also grows in the following year. In financial jargon this phenomenon is called compounding. And it’s an important tool to understand and explain the advantages of starting early.
RISKING IT FOR RETURNS
The riskier a trek, the stronger is the feeling of accomplishment. You make for a better winner when you have fixed a comparatively trickier mix. So, riskier the task, the more rewarding the returns. Also, it’s easier to take risk when you are full of energy and have time on your side. So you can put more money in equities which yield better returns.
LONG TERM
Another advantage of planning early is you can afford to have long vision taking into consideration the next five or maybe twelve years. It’s advisable to stay invested in equities for five or more years.
REVIEW REGULARLY
Since you not forced to hurry into reaping returns, you can afford to take time to review your investments at regular intervals and then take some more time to contemplate whether you want to make changes in your portfolio. You can alter your portfolio from time to time according to your needs and market conditions.
