The Importance of Investing For Someone Starting Off With Their Career

Investing is one of the best things you can do for your financial future, especially if you're starting off with your career. The earlier you start investing; the more time your money has to grow thanks to the power of compounding.
What is the power of compounding?

Compounding is the process of earning interest on your interest. This means that your money grows exponentially over time, rather than linearly.

For example, if you invest Rs. 10,000 at a 10% annual return, your investment will grow to Rs. 11,000 after one year. In the second year, you'll earn returns on both your original investment and your first year's earnings, so your investment will grow to Rs. 12,100. And so on. Here, the 100 you earned is the extra return due to compounding Over time, the effect of compounding can be dramatic. For example, if you invest Rs 10,000 at a 10% annual return for 30 years, your investment will grow to over Rs. 1,74,494 (return of Rs. 1,64,494)

But if you only got 10% for 30 years without compounding or if you took away the 10% returns each year, you would only have earned Rs. 30,000.

The power of investing a fixed percentage of your salary

One of the best ways to invest is to invest a fixed percentage of your salary each month from when you start earning. This way, you're automatically investing more money as your salary increases.

There's no right time to begin because as we grow older our responsibilities increase and "getting started" gets pushed over. A fixed percentage makes this commitment easier on us to begin with!

For example, if you start by investing 10% of your salary, and your salary increases by 5% each year, you'll be investing 10.5% of your salary in the second year, 11% of your salary in the third year, and so on.

Over time, this will add up to a significant amount of money. For example, if you start investing 10% of your Rs.6,00,000 salary at a 10% annual return, your investment will grow to over Rs.1.9 Crore in 30 years or Rs.5.6 Crore in 40 years

Why is it important to stay invested?

The stock market can be volatile, and there will be times when it goes down. But over the long term, the stock market has always trended upwards.

This means that if you stay invested, even though the market downturns, your money will eventually grow. In fact, some of the best investment returns have been earned during market downturns.

How investing can help you achieve financial freedom

Investing can help you achieve financial freedom in a number of ways.

• It can help you build a nest egg that you can live off of in retirement.
• It can help you reach your other financial goals, such as buying a house or starting your own business.
• And third, it can give you the option to retire early and pursue your childhood passions.

For example, let's say you're a 22-year-old who just started your career. You have a starting salary of Rs. 6,00,000. You decide to invest 10% of your salary each month in a low-cost Nifty Index fund.

Assuming your salary increases by 5% each year and your investments earn a 14% annual return, you'll have over Rs. 4.06 Crore in your investment account by the time you're 52 years old. This means that you could retire early and pursue your childhood passions.

How to get started with investing

If you're new to investing, there are a few things you need to do to get started.

1. Set some financial goals. What do you want to achieve with your investments? Do you want to retire early? Buy a house? Start your own business?
2. Create an investment plan. This plan should outline how much money you need to invest, how often you need to invest, and what types of investments you should buy.
3. Start buying investments. There are a variety of different investments to choose from, such as stocks, bonds, and mutual funds.

If you're not sure what types of investments to buy, you can talk to a financial advisor. A financial advisor can help you choose investments that are appropriate for your risk tolerance and financial goals.

Tips for staying invested

One of the most important things to remember about investing is to stay invested for the long term. The stock market can be volatile, but over the long term, it has always trended upwards.

This means that if you stay invested, even though the market downturns, your money will eventually grow.

• Have a long-term investment horizon. The longer you stay invested; the more time your money has to grow.
• Don't panic sell. When the market goes down, it's tempting to sell your investments and cut your losses. But this is usually the worst thing you can do. Instead, stay invested and ride out the storm.
• Rebalance your portfolio regularly. As your investments grow, the asset allocation of your portfolio will change. You need to rebalance your portfolio regularly to ensure that it still aligns with your risk tolerance and financial goals.
• Don't try to time the market. It's impossible to predict when the market will go up and down. Trying to time the market is a losing game. Instead, focus on investing for the long term.

How investing can help you achieve your childhood passions

One of the best things about investing is that it can help you achieve your childhood passions. For example, let's say you've always dreamed of starting your own business. But you don't have the money to do it now.

By investing early and staying invested for the long term, you can build up a nest egg that will allow you to start your own business. Or, if you've always dreamed of traveling the world, investing can help you achieve that goal as well.

Once you have a significant investment account, you can use the income from your investments to travel the world. Or, you could even retire early and pursue your childhood passions full-time.

The possibilities are endless. Investing is a powerful tool that can help you achieve your financial goals and achieve financial freedom.

This article is attributed to Mayank Mehraa, smallcase manager and principal partner at Craving Alpha.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.