The youth of today earn higher salaries enabling them to make intelligent investment decisions from their early career. When you start early, you are able to enjoy financial independence and security.
However, most early 20s youngsters do not consider saving and investments one of their top priorities. Their financial freedom, education loan burden, and the long horizon before their responsibilities commence are the reasons.
Investing in the early 20s has several benefits. Here are five such advantages.
1. Power of compounding
Compounding means that returns on investments (ROIs) are reinvested to earn higher returns. Although it may seem low, over the long-term the power of compounding allows individuals to accumulate huge wealth. The longer one remains invested, the higher your wealth increases.
2. More risk appetite
Investments such as equities or mutual funds are able to deliver higher returns. These are risky investments because of their exposure to market volatility. However, an individual in his early 20s generally will not have too many responsibilities and is able to assume higher risks to earn greater returns. As life progresses, marriage, children, and other responsibilities increase, which reduce the risk appetite of most individuals. Therefore, youngsters are recommended to open a demat account online and start investing today.
3. Higher retirement corpus
It is important to start planning for retirement early in life. This gives sufficient time to individuals to build a good retirement corpus, which ensures their financial freedom during their golden years. When a person begins early, he will need to invest a smaller amount to build the desired corpus. However, as he grows older, the investment amount increases, which may result in financial difficulties. Using the Systematic Investment Plans (SIPs) route to accumulating mutual funds in the demat account is recommended to build a good retirement corpus.
4. No debt burden
The easy availability and structuring of loans have encouraged most individuals to avail of debt to meet their large purchases. This increases not only the cost of their purchase but requires them to pay huge interests. If an individual begins goal-based investing at the start of his career, he will be able to avoid taking a loan, which reduces his financial burden. Therefore, financial planning and investment discipline help a person remain debt-free.
5. Money management skills
Until they start working, most youngsters rely on their families to fund their expenses. The financial independence achieved with the first job allows them to spend on several luxury items. Their first priority is to meet their expenses before they consider about investing and savings. However, when a person starts investing at an early age, it inculcates financial discipline ensuring unnecessary expenses are avoided. These financial lessons will help them throughout their lives. As they progress in their careers, their incomes rise. The early habit of financial discipline helps them restraint from indulgence and ensures stability through their lives.
Investing is a long-term activity that requires time to study the variables. When a person begins in his early 20s, he has sufficient time to learn from his failures and build on his success. Moreover, he has the flexibility to adopt different investment strategies that may be risky but deliver higher returns. Lastly, technical development has made investments simple and easy. A trading account allows individuals to invest from the comfort of their desks or homes. Young investors are tech-savvy and are able to take advantage of the several online tools and techniques that help them over the long-term.