Equity investments - What is the Right Age to Start Investing in Equities?
Nutan Gupta
Last Updated: 15th December 2022 - 09:55 am
An individual invests in the share market in order to earn profit. However, a lot of people still don’t know the right time to start trading on equity market. As the saying goes, ‘The early bird catches the worm’, similarly in equity markets, the one who starts investing at an early age earns more return as compared to a person who starts investing after him.
| Investment Planning for a person who wants to retire at the age of 60 | ||
|---|---|---|
| Age | 25 (Mr. A) | 35 (Mr. B) |
| Years left for retirement | 35 | 25 |
| Assumed Rate of Return | 10% | 10% |
| Monthly Investment | Rs 5,000 | Rs 10,000 |
| Total Investment Value | Rs 1.7 crore | Rs 1.2 crore |
In the above example, Mr. A starts investing at the age of 25 while Mr. B starts investing at the age of 35. Though Mr. B invests double the amount i.e. Rs 10,000, by the time both of them reach the age of 60, the total investment value of Mr. A is more than the investment value of Mr. B. This is because Mr. A stayed invested for a longer period of time and the power of compounding worked for him, though he invested a lower amount of money than Mr. B.
As years pass by, the value of your money decreases as inflation eats into a lot of your savings. Banks provide an interest rate of 4% on the savings account, and with an inflation rate of 7%, the value of your money goes down with every passing year. When you invest money in the equity market for a longer period of time, the money compounds every year, thereby giving you more returns.
The bottom line is that one should start equity investments at an early age so that you can get the benefit of compounding.
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