Invest while you are young

(A) Introduction

1. This article is mainly focused on people in their 20's irrespective of their work.
2. This article is as much useful to a young guy related to science or arts or a guy working in BPO  as it is to a person related with finance.
3. This article will deal with a very important question 'Why to invest' ? rather than " Where to Invest". For the answer to question "Where to invest " ? you can refer my article /forum/investment-part-ii-investment-options--115598.asp
4. All the views expressed here are my own creation and is based on the knowledge acquired by me during my CA studies and market study related to investment . 

“The most powerful force in the universe is compound interest”  -  Albert Einstein

(B) Why to Invest while you are young ?

1. You will have more risk taking ability in your youth  because the question of social security doesn't arise while you are young. Even if you loose your money you have time to recover from such loss.
2. The most common statement that i have read during my PCC FM syllabus is " More Risk More Return ". This line is very suitable for young people as people in their mid 40's or 50's prefers to invest in safe investments like FD's , Govt. Securities etc as they are concerned about their retirement and if they loose their money at such a point then they will not have any other source to again reach that financial level.
3.  Compounding interest works only in long run. Compounding interest is when you re-invest the profits of your savings back into your savings, so that your money grows exponentially. Invest it and forget it, if you will.
4. Investing money while in college or in case of CA Student during his aricleship period is an excellent way to begin securing your financial future. It's never too early to begin building financial security or too early to begin investing for retirement. If you have some money on hand, an early start can make a huge difference later.
5. The wealth created by compounding rate works in favour of those who have larger earning period remaining in their life.

(C) Examples

To make things more clear i am taking two examples, one of mine and other of my brother who did his MBA by taking an educational loan. 

(i) Role and impact of investment in my life (PCC / CA Final students doing their articleship should relate my example with their life)

        < Friends i am supported by my family for all my financial needs like food , clothing or education . So whatever money i get as  stipend during my articleship is naturally my savings. I have a option to r retain it with me and invest it further.

      < Let us consider that my total savings is Rs 5000  and i invest it  in a security or mutual fund that average 10% growth per year then after 50 years i will have Rs 586950. It grows by 117 times approx. This is the magic of Compounding interest.

     <  If you continue the above practice in long run then it will give you unbelievable results .  A 25 year old person who starts investing Rs 1000 per month at 10 return till he reaches 65 years of age will have Rs 6324080 while a 30 year old person will have only Rs 3796640. So this is the advantage of starting early.

(ii) Impact of investment in my Bro's life (Students pursuing their Bachelor's or Master's degree by taking an educational loan s'd relate themselves with this example)

 < Today's students find themselves in a situation in which a college education is essential, but incredibly expensive. Given the escalating cost of college tuition, most college students likely believe they simply do not have the resources to invest money while in college. Prudent investing, however, may be a way to survive on the income from your first job and a means by which to begin paying back your student loans.

< Although they seldom do it but then also  If you are a college student who can put aside a small sum each month, do it--you will be thankful later. Learning how to invest and build an investment portfolio will serve you well throughout your life.

(D) How to Save money for your investment

Yes the biggest question is "How can you invest money if you don't have much to invest to start with?". Some ways to overcome this problem are :-

1. Saving 5,000 is not a big deal if you are serious about it. Even if you are able to save 2,500, you will have close to 3 crore at the end of 65 years of age, assuming you are 25 years old. The important point is that you save something.
2. This method is known as affiliate marketing. You basically get paid for selling other peoples stuff through a website or blog. In fact, the first step is setting up a simple blog at blogger which will only take about an hour.
3. You promote products as an affiliate. Find a product that you are interested in, and try to sell it. There are many people making a full time income from affiliate marketing. Big companies such as home depot, amazon, eBay, and blockbuster all use affiliates to sell their products and services.
4. Find ways to reduce your expenses so you'll have money to invest. This is easier than many students realize. The basic idea is to set up a budget and then find out where you can eliminate things that don’t really serve much purpose. Decide how much money to invest and have your bank automatically transfer that sum to your savings account each month.
   
   
5. Pay your credit card bills on time. No exception.
6. If student loans are providing for your educational expenses, focus on working in order to begin investing. Find a job on campus or close to campus to minimize commuting expenses, and dedicate your pay to investing. If you need your paycheck to survive, then force yourself to save money from each check, putting a set amount aside each month until you have enough to begin investing.
7. Talk to your bank manager about student-oriented investment programs. Banks like to develop a relationship with customers when they are young because it’s a good bet a young person will stay with them for many years. Often, banks have savings and investment plans designed to help a young person get started investing with limited funds.
8. Open a savings account at your bank or student union. A savings account will pay you some interest and is a great place to keep funds until you have enough to take advantage of other investment opportunities.
9. Explore your investment options. You may want to set up an Individual Retirement Account that will provide a tax shelter for your investments. Don’t neglect to take advantage of where you are. On almost any college campus there are business schools with faculty who can help you learn about investing. Some universities have “Young Investor’s Clubs” composed of students who are already investing money while in college.
10.  Pay yourself first: Resolve to save a specific amount every month. Put it in investment account. Take this money out of salary in the beginning of the month so that you don’t touch it.
11. Stop splurging on sale and discount. You often end up buying things you never need.
12. Purchase things like car etc. on Loan rather than paying in one shift.
13.  Learn how to research and select investments before you put your money into them. Whether you want to invest in a mutual fund, individual stocks, bonds, or any other financial instrument, you should know as much as possible about how that particular kind of investment works. Mutual funds are portfolios of stocks managed by professionals and you need to know the terms of service of a fund and what its record is over the previous five years. For stock in an individual company, learn the company’s recent history, its current status, and its plans and future prospects.
14. Open a brokerage account online if when you are ready to choose and invest in individual stocks. An online brokerage account with a reputable discount brokerage lets you  invest with low fees.
15. Focus on the right kind of investment for you. Stocks are inherently risky, and you can lose everything very quickly. Understand the stock market fully before jumping in with your hard-earned money. There are a number of safer, albeit less rewarding, investment opportunities. Consider bank accounts and savings bonds. While savings accounts earn minimal interest, there is very little risk. Many banks also offer money market accounts, which provide a higher return than traditional savings accounts. If you simply must jump into the stock market, consider mutual funds, which are more diversified than stocks. If one company takes a hit, a diversified portfolio is less likely to suffer.
    
    (E) Conclusion

                 # With this I conclude my Investment series. This was the last part of my series. I hope people will be benefited from this series. For other parts you can refer below mentioned links

Other three articles of this series are :-  

/forum/investment-part-i-115534.asp

/forum/investment-part-ii-investment-options--115598.asp

/forum/investment-part-iii-basic-terms-used--115695.asp

# It w'd be unfair if I say that this was entirely my own work . Original Idea of series and topics was entirely mine which was well supported by the important facts and figures + examples from various investment websites and Books.  

#In the end i want to mention the names of members of CAClubindia who supported me by commenting on the various parts of my series :-

1. Ankur Garg

2. SAN

3. CA Aditya Maheshwari

4. Rahul Sharma

5. Jyotsna.S

6.Saritha and Vikas

7. Resham

8.Ranotosh Poddar

9.Tarun

10. Pri.v

11. Sneha

12. Unikuttan

13. Ca Sukanya

14. Palak