Importance of Investing: A Brief Guide to Early Investing

 

Source- Versa

Be it your parents, teachers, or group of friends, at some point in your life, I’m sure someone must have told you to start investing from a young age. And why not, investing early has its own set of advantages.

However, it is easier said than done, investing from a young age requires one to pass a hurdle of tests. With your competing demands like a budding career, rent, and student debt, it is difficult to make some money out and invest them in something, which does not even ensure a guaranteed return. One also needs to have some basic knowledge about the investing world before diving into it.

However, unlike earlier, there are a number of entry-level options available for early investors. Many mutual funds are available to investors at affordable prices, some firms even dangle them for free. Today young students have a number of resources to understand the investment market, some even available for free on certain platforms. 

Nowadays, investing is not only limited to money, it can be done by purchasing assets like shares and opening savings accounts. In other words, today any process which can increase the value of our funds has become investing. But narrowing down all such alternatives can be a tedious task. So, here’s a guide which you can turn to while starting your investment journey.

Significance of investing early

Before jumping to the main point of discussion, let’s go through the benefits and reasons why we should start investing early.

• Financial independence: Everyone loves the idea of becoming financially independent, and one of the ways you can do so is by investing at an early age. Even if you’re not able to generate huge returns presently from your investments, these small returns will definitely help you in your long-term financial independence.

• Time Value of Money: The concept of time value states that the money available to us now is worth more than the same amount of money we will have in future. This is because the money available with us has the potential to be invested for a longer period of time, thus appreciating more returns. Money that will be acquired later, will have less time to grow and is thus considered less valuable.

Source- Stock Market basics

• Risk factor: Risk-taking is another crucial factor. If you start early, you can learn from your mistakes and improvise your investment tactics before it's too late. You’ll get a hold of financial concepts to consider before investing, as you grow through your journey.

Deciding the investment amount

After understanding and being convinced that you’re ready for early investment, the next big step that will help you in your lifelong journey of investing would be learning. Learning is a never-ending journey, especially in the investment market, where prices fluctuate every day. There are a variety of platforms that provide you with an insight into various investment opportunities.

However, before investing your money, decide on how much you want to invest. One needs to keep their investment goals in mind before deciding. Consider the amount you need in future, and work backwards to break that amount into yearly or monthly investments.

Analyzing the investment opportunities

There are a variety of investment opportunities available across the world. It’s crucial to analyze every opportunity and understand the risks and returns attached to them. Some of the most popular investment opportunities in today’s world are listed below:

• Shares: Investing in shares of a company is one of the most traditional investing methods. Depending upon the company, share prices of some companies could be less than Rs.10, for some the prices could go as high as Rs.10,000 per share. The market can have a steep rise or fall within minutes, and thus analyzing the company and its shares is crucial.

• Mutual Funds: Mutual Funds are a bunch of investments combined together, that allow investors to invest in a diverse collection within a single transaction. This not only makes it easy for investors to pick a variety of shares but also reduces the general risk attached to them. 

• ETF: Short for Exchange-Traded Funds, ETFs are similar to mutual funds. The only underlying difference between them is that, unlike mutual funds, ETFs are traded throughout the day and are purchased for a share price. ETFs also generally have a lower share price than the minimum investment requirement of mutual funds, and thus are more suitable for early investors.

• Deposit Schemes: If you’re looking for a safer investment option, then consider deposit schemes. Deposits offer you a predetermined interest rate on your money for a certain period of time. The risks attached to such deposits are minimum, and thus if you’re a student or someone who is not a risk-taker, deposits seem to be the best viable option for you.

Bottom Line

There are a number of reasons to start early investment. As a student, it not only helps you financially but also makes your portfolio strong for the future. It teaches you the importance of money management and most importantly provides you with the freedom to make your choices. It does not matter how meagre returns you receive presently, because this amount will slowly grow and mature into a huge corpus, as you learn and grow through your journey.

Written By- Paridhi Aggarwal