Invariably everyone wants to get rich and wealthy. But is becoming a millionaire really difficult?
The answer is “No.”
Among several ways of becoming a millionaire, today we bring you one of the coolest and surest ways of becoming rich. And that is Starting Investment Early. Yes, if you start investing at an early age it can lead you to become rich and happy.
To lead a happy life, you require money and plenty of it.
The road to wealth begins at an early age when you are young.
If you realize this and start investing early, you can accumulate that much wealth which you desire and plan to have.
Here, we go on to show you the benefits of saving money early.
Two factors are worth to be noted here.
The first factor is the “Time Horizon, ” and the other is the “Power of Compounding.”
Let me give you a simple example to start the discussion.
Suppose Mr. X aged 25 years decides to start investing and another person Mr. Y aged 45 years starts his investment journey.
Who do you think would be most benefited assuming a maximum age of investment to be of 60 years.
Obviously, Mr. X has a longer time horizon of investment available to him.
It is 35 years whereas Mr. Y has only 15 years of investment opportunity with him.
So, Mr. X would be a much richer person than Mr. Y at the end of the investment term (considering other factors as same for both the investors and favorable investment conditions).
Reasons of Starting Investment Early
The objective of investing money is to become rich and fulfill your dreams. However, if you are not able to amass the desired amount of money, there is no point in investing money.
Here comes the importance of early investing.
Herein we have shown the benefits of saving money early. By starting to invest in at a young age, you give yourself the best opportunity for becoming rich. Investing in your 20s is probably the best and the easiest way to becoming rich.
So, let’s check in why investing early is the best method to become rich.
You Get a Longer “Time Horizon” for Investment
The longer the time horizon available to you, the greater is your chance of becoming a millionaire. Another effect associated with Time is that Gold prices and NAV of stocks tend to appreciate remarkably in a long term period (let’s take a minimum of ten years).
So, return on investment tends to increase as a period of investment becomes longer.
For example in 2001, the Gold rates prevailing were about $300 per ounce that has reached to about $1600 per ounce in 2012.
A remarkable increase of over five times.
And that is quite clearly greater than the return you get from having a fixed deposit in a bank for the equivalent period.
So if you had invested $300 by purchasing gold in 2001 then today you would have been richer by $1300 which is a good amount considering the initially invested sum of only $300.
Likewise, stock prices or NAV of shares also appreciate giving good yield on your invested sum over a period. The average return on investment in stock market is about 15% per annum.
Again winner would be those who have stayed into investment for a longer period and the longer period you can have when you start investing early.
Power of Compounding
Another factor which makes starting investment early a source for garnering wealth is the “Power of Compounding.”
In power of compounding your yearly interest is added to the principal invested sum which is then available for investment in the next year.
For example, if you have invested the sum of $100 and the rate of return is 10% per annum then at the end of the year the interest of $10 would be added to your initial invested sum. So, $110 would be invested in the second year.
This cycle continues during the investment period, and so the final amount becomes much bigger as compared to simple interest based returns.
Thus if your investment period is longer and that you can increase by starting early, then the effective wealth generated at the end of the investment period is much higher when investment is compounded every year than when the return is based on simple interest calculation.
Now, here’s an example to show you that “Power of Compounding” really works to your advantage and it is beneficial to start investing early.
Let’s consider that John who is twenty-five years old invests $2000 annually over a period of 10 years in his company’s 401(k), with an average growth of 10 percent. At the age of 65, his investment would have reached or rather grown to $556,197.
On the other side, there is Peter who starts investing $2000 annually over a period of 30 years into his 401(k) at the age of thirty-four. At the age of 65, Peter will have $328,988 in his retirement account although he has invested three times as much as John.
This example clearly shows the benefit of investing early where John gave his money time to earn compound interest. John would be having $225,000 more than Peter to spend during his retirement.
So, you see that you can easily increase your profits and make huge wealth if you start investing early. The old saying that “the early bird gets the worm” holds true in the field of investment too if you start to invest early.
By starting to invest at an early stage, you can better your retired life and would be able to save for the major events of your life that require you to spend a big amount of money.
Moreover, early investing helps to bring in a disciplined approach towards spending money. You begin to focus on your budget and cut down unnecessary expenses. You go on to develop the art of earning money by saving money.
Investing early helps you to have even more capital for your retirement. It’s the best way to lead an improved quality of life even in your retirement days. It helps to secure a stable retirement.
Becoming wealthy is important for your life and your loved ones too and starting investment at an early stage gives you the opportunity to become rich and simultaneously fulfill all your dreams and responsibilities.