Encourage Your Children To Invest Early

When it comes to investments, one must learn the fundamentals of investing as early as possible. Starting to invest early has many proven advantages, such as power of compounding, better understanding of market-linked products and ability to plan investments in a manner that ensures there are adequate resources available at every stage of one’s life.

Hemant Rustagi
Chief Executive Officer, Wiseinvest Advisors



Albert Einstein had once called power of compounding as the eighth wonder of the world. If one starts investing early and continues the process uninterruptedly, it can do wonders for the financial future of youngsters. For example, if one starts investing Rs 1,000 p.m. at the age of 18 in an equity fund and continue the process till the age of 60 years, at an assumed annualized return of 12 percent, the accumulated corpus would be Rs 1.50 crore. Needless to say, one wouldnot continue with the same amount (of Rs 1,000 p.m.)till retirement. Ideally, when one starts working and as income grows over time, investment amount will increase and get allocated to different investment goals to be achieved over the short, medium and long-term time horizons.
 
Continuing with the example, if one starts investing Rs 1,000 pm at the age of 23 years, the accumulated corpus would be Rs 83 lakh. If one further delays the process by five years, that is, if one starts investing at the age of 28, the accumulated corpus would be Rs 45 lakh.As is evident, therefore, the sooner one starts investing, the better it is.

It is also a well-known fact that investing is a process that requires patience, perseverance and knowledge as well as the discipline to achieve investment success on a consistent basis. All these traits can be learnt over time, and hence,starting to invest early helps. Unfortunately, not many take investment seriously at a young age and, hence, they pay a heavy price by compromising their important long-term goals like having a dream retired life.

As per a recent survey, only one-third people in India are regularly saving for their retirement. The lack of saving is linked to low knowledge of how much money is needed in retirement, as well as many prioritizing their immediate financial situation over planning for their golden years. Almost half of the respondents admitted that they prefer spending on enjoying today, rather than saving for tomorrow. A situation like this can only be avoided if one starts learning the nuances of investment at a young age.Hence, every parent must take effortsto encourage their children to start investing some money at an early age.In fact, learning about some basic investment concepts can go a long way in making youngsters understand the importance of saving and investments.

Remember, when youngsters invest smaller sums of monies in equities with time on hand, they learn that volatility is a natural phenomenon in the stock market and if they remain invested through the turbulent times, they can earn returns that are higher than other asset classes. More importantly, when they are ready to invest serious money as they start their professional career, they will give equity its rightful place in the portfolio.

The key for youngsters is to understand the risk/reward concept. All investments carry some degree of risk. The rule of thumb is “the higher the risk, the higher the potential return,” However, it is equally important to understand that higher risk does not necessarily translate into higher gains. Hence, one must invest in a manner suchthat there is a right balance between risk and reward. This can be done by following a goal-based investment approach that allows one to create separate portfolios for goals to be achieved over the short, medium and long-term time horizons. While short term goals require us to protect capital, long-term goals require a portfolio that can help negate the impact of inflation.

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