Islamic Finance Blog & Articles
It is a fundamental question that every adult should have in mind in their early twenties. Learn to invest your money early because several benefits come with early investments. Nothing is more important than investing and planning early, especially if you want to plan for retirement and meet your retirement goals and objectives. With some of these advantages, you may not see the fruits immediately, but you will reap the benefits of investing early at the end of the day.
Benefits of learning how to invest early
1. By learning how to invest early, you increase the power of compounding
Among the most practical reasons you should learn investments early is it hinges on the power of compounding. Compounding can be described as the ability to generate returns by reinvesting the previous returns you had from an investment; this effect will become more powerful as years pass. Within no time, you will start earning from your investments. At this point, you will be seated in your retirement house with no worries at all because you planned early.
I am not saying that one can not learn how to invest in their 30s or early forties, but you should start investing as soon as possible. By this, I mean as soon as you begin working to maximize the power of compounding. In short, give compounding returns emphasis on the advantage of the time value of money.
Regular investments in long-term portfolios, where you know the expected rate of return throughout ten to twenty years, will substantially boost your investments. Within the group of portfolios, the suitability of a person hinges on their risk profile determined by different categories, including moderately conservative, balance, and moderately aggressive.
In most cases, a minimum of at least five years will be taken for the portfolio to maximize the full benefits of compounding. Again the amount of money you put up for the first investment matters because it will increase the long-term compounding effect of money invested.
Here is a good example
For example, a twenty-five-year-old woman deposits $ 3000 into her account, which will earn her a five percent return yearly. At the end of the first year, she will have accumulated a sum of $ 3100. In the following year, she will get a return of five percent on the $3100 of the previous year and not the original $3000 and thus in the second year she will have $ 3205. If she has a retirement fund that yields a yearly return of five percent, she doubles the amount that she invested in not more than fifteen years. This is how the power of compounding work wonders within a meaningful period.
2. There is more time for risks when you learn to invest early
With the change in times, markets have become unpredictable and volatile over a short period. Nevertheless, in the long run, time has proven to help increase the predictability of people's portfolios and reduce volatility.
History have proven that the capital market will often favor individuals who have long-term investments compared to short-term investments. When an individual decides to start investing early, it does not matter how volatile the market is. They are at a better advantage to get enough buffer time to recover from any setbacks.
If you learn to invest early in life, you are most likely to acquire more opportunities to undertake huge risks compared to a person who will invest later in life. The late investors are at risk of experiencing many challenges, and because they are already late, they might not be able to overcome challenges when they come. After all, their time frame for recovery is lower. Therefore for your retirement plan to remain on track, it would be best if you decide today to begin investing early, especially if you do not like taking risks.
3. Investing early in life will help you cultivate good financial habits
Learning how to invest early in life assists individuals in adopting good financial habits. It goes a long way in stabilizing a person's retirement plan. The amount of money you as an individual decide to invest for you to have a secure and stable retirement will depend on the personal and financial objectives and the time horizon of an individual. If you wish to retire early, you should decide to start saving up to half of your monthly salary. I am trying to say that discipline is essential if you want to see your retirement plan work.
The only way to develop an excellent financial habit is to learn the benefits of investing early. In Singapore, research shows people who has a financial plan through discipline investing from an early age are more disciplined in their spending. Because some retirement plans are crafted based on pre-set parameters, such as how long the retirement fund lasts, if a person lacks discipline, they might lose focus and render their retirement plan ineffective.
Therefore, with this information, it is important to note that by investing early, there are various advantages it offers. The main advantage is to capitalize on the power of compounding effect. After that, there is the advantage of you having more time to take on even the riskiest market ventures because you have time to recover from losses. Last but not least, there is plenty of time for you to gain good financial habits. When put together, these significant benefits will help you achieve your retirement plan from an early age.
From this article, you know the advantages of learning how to invest early; you should take it upon yourself to look for a professional in this field to give you objective and sound investment advice to help you grow, plan, and protect your wealth. Get a professional who will provide you with top-notch services, be it to you as an individual or to a corporation.