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Originally Posted On: https://www.businessandfinace.com/5-top-reasons-you-should-invest-your-money-early-in-life/

 

5 Top reasons you should invest your money in life.

While investing should be a lifelong habit and it’s never too late to start investing, investing when you are younger offers a variety of distinct benefits that can not only allow you to enjoy more wealth later in life but also live a more comfortable life as you age.

While it’s always wise to be aware of the investments you are making based on risk tolerance, asset class, potential yields and what your investment goals are,

the below reasons will help you to understand the benefits of why you should invest your money early in life.

Compounding interest.

If Albert Einstein described compounding interest as the 8th wonder of the world, then there has to be some credibility to the practice.

Further, the power of compounding interest is such that if you invest the same amount earlier and let it compound, it can generate more wealth than similar investments later.

The greatest part of compounding interest is that it is a fairly simple concept to master: invest your money and let it accumulate interest over time.

Because the interest adds to the principal amount invested, further interest is on the accumulated value, giving you more money on the money you have without doing anything to that money.

There is some variability to the effectiveness of compounding interest, though. Adjustable interest rates, asset variability (such as with stocks and bonds),

withdrawal frequency and how long you maintain the accumulated assets in a respective account will all influence the effectiveness of compounding interest.

That being said, since most people have savings, investments or even retirement accounts that all take advantage of compounding interest through account interest or dividends that are returned to the principal,

compounding interest continues to work wonders. The key to getting the most out of compounding interest is to start as soon as possible. Although larger principal amounts and continued investment can compensate for later investment,

it’s easy to see how easy it is to generate substantial returns simply by investing a modest sum as early as possible, with even greater returns the more you invest.

5 Top reasons you should invest your money early in life

Allows for your to endure shocks better.

As millennials and Gen-Xers know from the Dot Com bubble of 1999, the housing market collapse of 2008 and the health crisis recession, there is much volatility in the market.

Since nothing is certain, it’s always a good idea to consistently save and invest to provide a cushion for any market deviation. That being said, and along the lines of starting earlier to take advantage of compounding interest, the sooner you start

investing and the more you invest, the more funds you will be able to accumulate to respond to market shocks that can leave you with increased expenses or without a job.

While these are worst-case scenarios that can’t always be predicted, saving and investing earlier allows you to also prepare for future, more predictable expenses.

Buying a house, sending a child to college or paying for medical expenses becomes much easier when you have consistently saved and accumulated a sufficient insurance fund that can compensate for any predictable purchases,

unexpected expenses (floods, broken-down cars) or fill in gaps where unexpected expenses are needed, such as medical conditions not covered by insurance.

5 Top reasons you should invest your money early in life

Build credit and prepare for withdrawals.

Managing credit is a delicate process that can pay huge dividends depending on what type of purchases you wish to make at a later date.

For example, if you wish to buy a house and use a mortgage, establishing a good credit history can help to make acquiring a mortgage much easier as well as improve the options available to you.

Similar scenarios may arise if you are trying to start a business and need to buy equipment or machinery, if you need a new vehicle for work or personal use or if you need to make any large purchases.

When you invest properly, whether, through a home equity line of credit or other credit-related investments (such as a credit card), you better establish yourself as a worthwhile business candidate.

Along those lines, investing at a younger age provides more assets that you can use throughout your life not just for larger purchases that define a more comfortable life, such as a home and car, but for smaller purchases.

If you regularly invest in a dividend-yielding asset class, such as many stocks and bonds, then you can use those dividends to help pay for education-related expenses, home upkeep or even a vacation.

You can also use these funds, as well as other savings instruments such as life insurance policies, to help pay for business-related expenses that can lead to higher earnings.

Ultimately, the earlier you invest, the more you have built up to sustain long-term spending possibilities.

5 Top reasons you should invest your money early in life

Increase the variety of investments available.

If you start out with long-term, lower-risk investments and gradually accumulate sufficient returns, then you can use these returns to invest in higher-risk higher-yielding asset classes that increase your investments.

This practice not only takes advantage of compounding interest but also diversification that helps to spread risk across asset classes while taking advantage of the merits of higher-risk yields that bring greater returns faster.

The earlier you invest, the more time you have to accumulate more funds and the more time you have to invest. Conversely, when you are older, you are more liable to suffer from large investment swings or market shifts that can adversely impact your savings.

Unless you are a savvy investor looking to take advantage of market trends later in life, investing when you are younger offers more time to diversify your portfolio.

5 Top reasons you should invest your money early in life

Life-long habit.

Generally speaking, if you are investing at a younger age, you are of a sufficiently sound financial mindset that is reflective of an influence of a more pragmatic approach to living.

Rather than spend all of your money on frivolous pleasures or bad investments, investing at a younger age helps you to focus your energies on gradually accumulating capital,

wealth and a comfortable lifestyle rather than trying to binge and hope for the best if your decisions don’t work out.

Investing at a younger age helps to give you a perspective to manage your wealth over the long-term to endure shocks and variability while still maintaining your health, happiness and sanity.

Ultimately, whether it’s compounding interest, expanded investment possibilities or improved investing outcomes, investing at a younger age offers as many dividends as the assets you may be considering.