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If you are in your early 20s, it is imperative that you start to think about saving and investing money, the earlier you start, the better for your financial future.
A study by Fidelity Investments found that people who started investing in their 20s had ten times more money saved for retirement than those who started in their 40s.
You need to start your investment in your early 20s and save at least 10% of your income every month. By doing this as a bare minimum, you would be able to retire comfortably. Please keep reading to find six reasons the financial expert recommends starting your investments in your 20s and understand why it is important to start investing early.
Reasons to invest in your 20s
1. Compound interest
Compound interest is a great way to get significant sums of money over a period of time. You can easily earn interest on your interest. Even if you start investing with a small amount of money, you can still yield good returns with compound interest because the sooner you start investing, the more time you will get for your money to grow
1. Time to recover from your mistakes
Everybody makes mistakes, as not everyone is a financial expert. If you make a mistake when you are in your 20s, fortunately, you will have more time to recover from your mistakes and to learn from your mistakes.
2. Low expenses
You are less likely to have a high cost of living in your 20s than in your later life, which is why you would have more money to invest due to lower expenses.
3. Risk tolerant behaviour
You are more likely to invest in riskier assets and less likely to play it safe when you are young. You would invest in riskier assets which would give you higher returns in the future.
4. Financial Freedom
A study by the Indian Institute of Management Ahmedabad found that the average Indian worker will need around Rs. 1 crore to retire comfortably. So, if you start saving and investing in your early 20s, you will have the financial freedom to live your life comfortably.
5. Knowledge of personal finance
Investing will help you learn much about personal finance topics like asset allocation, diversification, risk management etc. As you keep learning,, you will become more experienced in investing better.
A study by the National Institute of Financial Education found that only 1 in 5 Indians have started saving for retirement by the time they’re 25.
How to start investing in your early 20s?
- Open a brokerage account to be able to buy and sell your investments.
- Make sure to do your research and understand the risks involved before investing.
- Start by investing only a small amount of money.
- Do not expect overnight returns; you need to be patient, as investing is a long-term game.
The average cost of living in retirement in India is around Rs. 30,000 per month, and an average Indian spends approximately 20 years in retirement, making it imperative to have a solid retirement plan to live comfortably.
The best thing to do is to start investing in your early 20s because the sooner you will begin to, the more time your money will have to grow to achieve great financial results.