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Advantage of Investing Early

Is there an advantage of investing early?

Asked about the secret behind his investing success, Warren Buffett quipped that he was fortunate to have started early. He said that he used to visit his father’s office, who was a stockbroker, from the age nine. He added that he had bought his first stock at the age of eleven.

Nothing more can be true or revealing than Buffett’s admission. For, the real secret to riches lies not in the investing genius of the investor but in the power of compounding.

So is there an advantage of investing early? The answer is an emphatic yes, affirming the veracity of the proverbial saying, “Early Birds Catch the Prey”.

Let us understand how there is an advantage of investing early.

Importance of Teaching to Invest in Schools

I can say with conviction that schools must include investing as a subject at least from the age of 14. In addition, the curriculum should include an abridged version of the book “The Intelligent Investor” by Benjamin Graham. From the age of 11 children can be shown videos/ films about the good habit of saving. Children can learn to save the money received as gifts on birthday and other occasions. On completing 18 years children can open a trading and dematerialised (Demat)  accounts and start investing.  Of course, they may require a bit of guidance and supervision both from parents as well as experts, till they can manage investments on their own.

The Advantage of Investing Early from the book "The Intelligent Investor"

What is the Advantage of Investing Early?
  1. When you start early the power of compounding will work for you and help in creating a sizeable wealth for you.
  2. Starting early will help you achieve financial freedom and retire early. This, in turn, will assist you to escape the drudgery of having to work necessarily.
  3. It will also help you learn early in life the virtues of a simple lifestyle and avoiding debt.
  4. You will feel secure. This sense of security helps you and your family lead a healthy and happy life.
How to be Sure that there is an Advantage of Investing Early?
I present below a comparison of potential investment results that could be achieved by a person who started at the age of 25 and the who started at 55.  We also evaluate the results when both have completed 75 years.
In India, we use units of lakhs and crores for measuring large numbers. Therefore I have punctuated the numbers in crores. I have deliberately avoided mentioning the currency as the calculation is currency neutral – it makes no difference whether use INR or US Dollars.
 Investment Returns Table Shows Advantage of Investing early
We can see that though the monthly investment is a humble sum of 1000, the early starter could generate a significant wealth of 12.25 crores (122.5 million). Whereas for the same sum of investment the results of the late starter are disproportionately small.
How Can a Late Starter Regain Advantageatge of Early Investing?
While starting early does give a clear advantage, those who could not need not lose heart. They can still produce good results over a timeframe of 20 to 25 years.  Since we can assume that an adult can expect to live for about 75 years, even if we could start only at the age of say 45 years, we can still achieve impressive results, by slightly increasing either the initial corpus or the monthly investing sum or both. Please see the table below:
Advantage of Early Investing 2 - late starter
Please note that the real wealth creator is the long time frame rather than the quantum of either the initial or monthly investment sum.
To summarise, the answer to the question is there an advantage of investing early, the answer is that definitely 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 from the example 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.

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