6 Benefits of Investing Early | Compounding of Interest

There are multiple Benefits of Investing Early including achieving your financial goals before time, getting early retirement, enjoying your passion after financial independence, taking a long vacation you were waiting for, and most importantly, getting compounding benefits. Early Investments helps us to get good compounding benefits, which means earning interest on already earned interest, which can be seen only during the later stages of our life.

Let us see what are the different Benefits of Investing Early. Also you can watch below video to understand power of compounding with help of examples.

Table of Contents

Power of compounding Video with Examples
1. Compounding of Interest
2. Achieving Financial Goals before Time
3. More Time to Recover from Losses
4. Reduced Risk
5. Financial Security and Peace of Mind
6. Financial Independence and Retire Early
- Retirement Calculation in Excel Video
Conclusion

Power of compounding Video with Examples

Watch more Videos on YouTube Channel

As seen in above video, the power of compounding in markets helps you to achieve your financial goals before time and also helps to grow your money if you are ready to give time to the market.

Giving time to market along with investing early is a the best combination for your financial situation.

Below are the 6 Benefits of Investing Early.

1. Compounding of Interest

Compounding means earning interest on already earned interest
For example, if you have invested in Fixed Deposits, you get interest on quarterly basis (every 4 months). This earned interest helps you to get more interest in the upcoming months. Hence every quarter you get increased interest amount that is accumulated and provided at the end of the fixed deposit tenure
Another example is of PPF (Public provident fund), in which case you get yearly compounding benefit. The interest is calculated every month and is added at the end of financial year to earn you more interest in upcoming years
Similarly, you get the benefit of compounding in SIP as well. When you start investing early and consistently invest in mutual funds via SIP, after 15 to 20 years, the benefit of compounding can be seen when you get approximately 10% to 15% returns every year in mutual funds
In this way, the compounding of interest plays a major role at the later stages of your life when you had already started investing early in investment schemes

2. Achieving Financial Goals before Time

Investing early helps you to achieve your financial goals before time
For example, if your goal is to retire early at age of 50 and you are already 35 years of age, you have only 15 years to accumulate enough funds that covers your monthly expenses
Where as, if you are 25 years old, after 15 years of age you will be at 40 years, and hence can retire before 50 years in this case. This is the power of investing early
Early investing helps you to retire early as seen in above example, which is one of the best benefits
Similarly, you can achieve other financial goals of life before time if you give more time to the market by starting early investing

You can download the Retirement Calculator in Excel that help you to plan your retirement with inflation considered. Click below button to download retirement calculator in excel:

3. More Time to Recover from Losses

Another important benefit of investing early is you can recover from market loss
While you start investing, you can face short term losses within next 1 to 3 years if investing in stocks or equity mutual funds
You don’t have to worry in this case, since historically we have seen that market corrects occasionally and over a period of 10 years or more, you can get 10% to 15% CAGR (Compound Annual Growth Rate)
So this benefit is crucial while considering your emotions if you see any losses in the market
It is important to note that you face loss only when you sell your asset at a price lower than the purchase price
So if your returns or profits are negative, it’s important to hold those assets until you see the profits in positive before selling them

4. Reduced Risk

Investing early means you’ll have more time to hold your assets in the market
This means you reduce the risk of financial loss mentioned above
Over any period of 15 years slot, we have seen at least 12% of CAGR with index mutual funds historically
This is believed to continue since all countries try to become developing or developed countries, and economy is the important factor for all of them
This major reason will make the market move in upward direction as far as economy of any country is concerned
So investing early gives you more time in the market, which reduces the risk of financial loss

ALSO READ: Rs. 2000 SIP Returns Calculation for 15 Years

5. Financial Security and Peace of Mind

Since you get the benefit of compounding and reduced risk while starting early, you get financial security and peace of mind
If you are working as an employee and always depend on salary at the end of month to fulfill your needs, you’ll always be in stress
Every day you force yourself to go for work so that you get your salary using which you buy your needs and wants without any savings left
Whereas, if you put some efforts in investing early and try to build a corpus over time, you are not dependent on the salary every month, since the accumulated corpus helps you to earn good profits every quarter or year
For example, if you have already accumulated Rs. 1 crore in a good mutual fund, which provides you 12% returns on average, which means 1% returns every month to keep it simple, you’ll get around Rs. 1 lakh per month only as profits from this corpus which ight be more than your monthly salary. This is the power of starting early

6. Financial Independence and Retire Early

Last but not the least, you can enjoy financial independence and retire early (FIRE) when you start investing early
Financial independence is the term used when you already have enough accumulated corpus in good mutual funds or stocks that helps you to get monthly profits greater than your monthly salary. In this way, the profits earned can replace your salary and you no longer have to depend on your salary
It is important to note that not every month you’ll get positive profits. Some months and years can also return you negative profits which you have to face as part of controlling your emotions
This financial independence can help you to retire early and work on your passion you always wanted to enjoy in your life
Early retirement does not mean you completely stop working. Obviously, you have to keep yourself engaged to avoid boredom
You follow your passion after attaining financial independence and retiring early

Watch below video to see how retirement calculator in excel helps you to achieve early retirement cover your monthly expenses.

Retirement Calculation in Excel Video

Conclusion

So these are the 6 benefits of investing early, out of which, compounding of interest is the major benefit that helps you to get other benefits explained above.

As mentioned by Albert Einstein – “Compounding is the 8th wonder of life. Those who understands it will earn it and those who don’t understand will pay it“

Get EARLY Retirement!

Use Retirement Excel Calculator that will help you to Retire Early.
Click below button to download Retirement Calculator in Excel:

Watch how Retirement Calculator in Excel Works

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