Why Your Daughter Should Start Investing Early: 2 Crucial Reasons

"Empower your daughter with the gift of financial education and investing early on, and watch her confidence and wealth grow for a lifetime." - Barbara Stanny

Smarter, not harder. That’s the goal, right? In investing, smarter can mean a lot of things, but one of the easiest ways to invest smarter is to invest younger. Investing early in life practically guarantees financial freedom for your daughter later in her life. Kids will typically invest similarly to how their parents invest. That means that if you don’t invest, well, there’s a good chance they won’t either. Whether your kids choose to invest in stocks, bonds, real estate, businesses, commodities, peer-to-peer lending, or inventions, starting young will increase their chances and amount of success. Here we give you two reasons why you should start saving early.

This Blog will uniquely focus on two different perspectives: 

1. Mathematical Reason

2. Psychological Reason

And starting to invest early is the best way to give your money more time to compound. If you start at the age of 25 and invest till retirement (let’s say 60 years), you would have invested for 35 years. But if you start at the age of 30 you would have invested only for 30 years. So how much difference can this make? Let’s take a look.

Two friends, Aanya and Tanya start working at the age of 25. Aanya starts investing ₹5000 immediately, while Tanya spends most of his money and starts investing only at the age of 30. How much difference do you think this would make to their corpus when they’re 60? If we assume a uniform rate of return of 12% per year, at the age of 60, Aanya would have accumulated ₹2.76 crores whereas Tanya would have ₹1.54 crores. That’s right, just a small difference of 5 years allowed Aanya to accumulate almost 1.8 times the corpus of Tanya. That’s the power of compounding. The money invested early on goes on to grow into a huge corpus due to the higher number of years of compounding.

If you inculcate a disciplined approach to saving money from early on, you’ll find it easier to save and invest later on in your life, when your expenses grow along with your responsibilities. The money saved early on will also act as a cushion, in case you hit a rough patch in your career. You’ll have some level of financial independence, and will be able to sustain yourself for a few months without falling back on your friends or family. Thus, having some investments will guarantee mental peace at all times.

Being young also allows you to be more tolerant to risk. You have fewer responsibilities and loads of time on your side. This makes it is easier to absorb any fall in the value of your investments when equity markets are not doing well. This also teaches you a valuable lesson. You learn to be comfortable with the volatility of equity markets. Over a long time, the higher return potential of equity can make you rich. If you start early and become comfortable with the ups and downs of stock markets, you will be able to amass much greater wealth than you would if you simply put your money in a bank.

Following are some reasons it’s so important for your kid to start investing as early as possible. There are many more reasons I’m sure, but I feel like 7 is enough.

1. Compound Interest

2. Recover From Mistakes

3. Take More Risks

4. Learning to “pay yourself first”

5. Discover Preferences on Investing

6. Less Money is Required so more saving

7. Easy to Retire Young/Financial Freedom

Now all this might not make a lot of sense if your income is not big enough to save. However, it is imperative to remember that we are not advocating for saving x% of your salary. The important part is to start saving. Maybe you are posted in an expensive city and your rent takes up a major chunk of your salary. But there’s no harm in starting small. You can start a SIP in an equity mutual funds with just ₹1000. If you save ₹1000 every month in the first year of your career at the age of 25, and it grows at 12% per year, it will add ₹6,01,845 to your retirement corpus. That’s the power of compounding.

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