Starting to invest small amounts in your 20s consistently across the length of your professional career can result in excellent returns over time as you begin your professional career. It is not too early to start SIPs in your 20s, but in fact it is the best strategy for good long-term returns.
1. Power of compounding
Albert Einstein, one of the world’s smartest people, called compound interest the eighth wonder of the world. Investing consistently over a long period of time will yield massive returns over the long term. Take the example of three friends – Priya, Salim, and David. David invests from the age of 20 to 50, Salim invests from the age of 30 to 50, and Priya starts her investment journey at 40 and invests until she is 50. David’s returns are far higher than Priya’s, even though they invest the same amount of money at the same rate of return.
SIPs are the best way to get into the habit of investing every month over a long period of time. It is always better to start early with a smaller amount rather than to start late with a large amount.
2. Ability to take risks
As a result, people in their 20s usually do not have responsibilities. You may start by setting aside 500/- a month as an investment. The key is to keep the habit of investing alive and wait for time to work its magic. An investment of 500/- with an increment of 10% over that amount can provide handsome returns.
3. Easy way to save tax
Most young people don’t have pension funds, home loans, or health insurance in their 20s, so they miss out on tax savings. ELSS funds might be one solution.
ELSS funds are mutual funds that can be tax deductible up to Rs 1,50,000 under section 80C of the Income Tax Act, 1961, with a three-year lock-in period. Investing in ELSS funds with SIP of as low as 500/- could give you high returns over time while keeping you invested in a diversified portfolio of companies at the same time.
4. Savings for long term goals
Millennials imagine big these days. From owning fancy bikes and cars to owning a home, people in their 20s certainly have a lot on their minds. Some even fund their further education and marriage with their own savings.
A consistent monthly SIP of 5000 over a period of 10 years can grow your 6 lakhs to 11.62 lakhs at an average rate of return of 12%, even though salaries are low in the 20s.
5. Preparing for adversity
We all know how adverse situations can rock our financial position without notice when living amidst an ongoing pandemic. Today, it is imperative to invest some amount of money regularly to prepare for adversity. SIPs are the best and safest way to increase your money while you continue to work hard.
Conclusion
The best time to start investing is in your 20s and the next best time is today! Decide how much you want to invest per month and get started on your journey to becoming financially independent.