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Tuesday, 1 January 2013

Start Investing early in Life, but WHY?

Early investment advantage
This post is primarily for the young readers of this blog to take a resolution on start investing early in life. Start investing early, this is the advice all financial planners suggest today. But, why need to start investing when you are young. This is because of the Compounding power of money. Absolutely there is a difference who starts investing at the age of 18 and who start investing at 28. If you start investing at 18, you will get early financial freedom and get retired with adequate wealth.

The power of compounding can be better explained with an example for easy understanding. Let’s take two friends John and Robert. Both are at 18, John learned the power of compounding and started investing $ 5000 a year from the savings he made from his part time job. He knows the value of investing, so he invested in quality stocks rather than saving money in bank account. Assuming 15 % return on this investment, he accumulated around $ 101,500 in 10 years. After this, he stopped investing, but he didn’t touched the money accumulated so far and let it fetch the return of 15 % per year till the age of 55. His investment grows around $ 4,400,000, though he stopped investing after initial 10 years. This is the huge money which is more than enough for his decent retirement.

The other friend Robert, who didn’t aware of investing and compounding power of money, enjoyed during his teens and spent all his money which he could save and invest. All of sudden he realized the importance of money and investing at the age of 28, so he started investing where our other guy John actually stopped investing. Robert managed to invest $ 10,000 per year till the age of 55 assuming the same return of 15 % per year. At the age of 55, he accumulated around $ 2,850,000 which is almost half of the wealth John created. Though, he invested $ 10,000, double the amount John invested per year and keep investing for 22 years till he reach 55, Robert can accumulate only half of the wealth John created with the investment of 10 years.

Here, the difference is, John started 10 years earlier, but Robert didn’t. This is the power of compounding and investing over a period of time. Hope you could understand the importance of investment early in life by this small illustration.


  1. So true except today people don't have anything left after bills and

  2. Thanks for the easy to understand explanation. i don't feel safe about stocks and shares so what would be ur advice on the safest form of investment?People around me are harping about real estate. what would you suggest?

  3. Thanks for your views, Shivani.

    In fact, no investment is safe, it depends on how we are managing them well for better returns.

    Real Estate is good as long as it can generate passive income for you. Don't look at Real Estate only for capital appreciation.

  4. I remember reading this article from your old blog. Thanks for letting me know that you own this one JP. Glad to see you again.

  5. My father who is now 90 years old started investing at a very early age, and because of that he could give us all the basic comforts, good schooling, he could buy 2 houses, and took care that we three sisters got married decently.
    My husband too has been into investments. I wish more and more people would realize this and save prudently for their own future.

  6. happy new year to you! i hope it is a good one for all of us. :)

  7. Hiya...Thank you so much for swinging by to my blog, I truly appreciate that :)

    I totally agree with what you have writeen about adding value in every effort and that's what I believe too. I believe in adding value in everything that I do and most importantly, having a good positive attitude too :D

    About investing, I am so bad at this and just few years ago, I bought a 5-year bond and so far so good ;D

    Cheers again and I'll be back :D

  8. Was here again :)
    I'm not young anymore, but I guess it's never too late to do valuable things.