Is it Better to Start Investing Early?

Early birds catch the prey

When asked what was the secret behind his phenomenal investing success, Warren Buffett quipped that he was fortunate to have had an early start. It seems that he used to visit his father's office, who was a stockbroker at the age nine and if I am not mistaken, bought his first stock at the age of eleven. Nothing can be more true or revealing than Buffett's admission about long-term stock market investing and wealth creation, for indeed the real secret lies not in the investing genius but in the power of compounding. So is it better to start investing early?, the answer is an emphatic yes, as in the proverbial saying, "Early Birds Catch the Prey".

In my opinion perhaps the educations system should include investing in the middle school curriculum and introduce an abridged version of Benjamin Graham's book, "The Intelligent Investor". Then children can start learning investing from 12 years onwards, can save the money received as gifts on birthday and other occasions in savings account to begin with.  On completing 18 years they can open trading and dematerialised (Demat)  accounts and start investing.  They may require guidance and supervision both from parents as well as experts till they can manage investments on their own.  

Advantage of Start Investing Early

While starting early does give a clear advantage, those who could not need not loose heart. Significant wealth creation is still possible with an investment horizon of 20 to 25 years.  Assuming that an adult can expect to live a healthy life till about 75 years, even people who could start only at say 50 can still achieve good results.

I present below a comparison of potential results achieved by a person who started at 25 and other who started at 55 and we evaluate the results when both have completed 75.

See the huge difference between the wealth created by an early and a late starter.  But the monthly investment amount we have kept constant for both at a very very humble Rs.1000 (US$ 15) per month.  The late starter can increase his success slightly by compensating the lost time with a higher monthly contribution.

But please note that real wealth creator is the long timeframe rather than the quantum of either the initial or monthly investment amount.

To summarise, is it better to start investing early? Indeed it is beneficial to follow in the footsteps of Warren Buffett, study Benjamin Graham's classic work, "The Intelligent Investor", and start investing early - for early birds do catch the prey!  We have seen that by starting early, even with a humble investment of just Rs.1000 (US$ 15) a month by way of a systematic investment plan (SIP), an early starter can create a huge and significant wealth of Rs.122 millions over a period of 50 years. 

Do you Need to be Millionaire to Become a Billionaire?

Many people believe that in order to become a billionaire through share market investment, one needs to be a millionaire in the first place. Is this belief valid?

Warren Buffett literally started from the scratch and has risen to what he is today through a long journey of prudent stock market investments.

Anyone, literally anyone - from a pizza delivery boy to gas station attendant, with humble means, can become rich and build lasting wealth, if one can start young.

Really, there are only two essential ingredients for wealth creation - discipline and a long timeframe - 20 to 30 years.

First lets understand what discipline means - It means financial discipline comprising two elements:

1. Don't blow your hard earned salary on luxuries - branded clothes, expensive eating out, bars, gifts and girlfriends!  Keep your needs simple.
2. The moment you receive your pay check, invest first and spend what is left.  You invest first and learn to live within the balance and not the other way round - spend first, and save what remains. 

Second, and the hardest part, is simply let the investment be.  You have to give your investment a chance to multiply.  We have to let the miracle of compounding to work.  Why I say this is the hardest part is human nature.  Perhaps having evolved from the proverbial monkeys, human mind can not be quiet even for a moment.  If the stock market falls, immediately we get nervous and think of selling the investment, even at a loss.  If the market rises, again we think of booking the profit.  The thinking goes, "who knows, if I don't sell now, I may miss the opportunity for ever".  Thus human mind does not let the investment to grow, resulting in premature harvesting of the crop.

How Systematic Investments Can Multiply

I present here what any humble wage earner can create significant wealth by starting at the age of 20, over fifty years, with a humble systematic monthly investment of Rs.1000 (US$ 15).  I have assumed longterm stock market returns at 15% per annum (based on Indian market performance) and annual inflation at 10% per annum.

We can see that this small regular investment grows into a whopping Rs.12.25 crores (US$ 1.80 million) net wealth over 50 years.

Related Posts:

• Can One Get Rich From The Stock Market?
• Everything You Need to Know About Wealth Creation Through Systematic Investment Plan (SIP)
• How to Choose the Right Mutual Fund to Invest?

Conclusion

The answer to the doubt, "Do you Need to be Billionaire to Become a Billionaire?", is an emphatic NO! Even a ordinary wage earner, who starts early and consistently invests through a systematic investment plan and keeps the investments untouched for long periods of time can create significant wealth.