Is There A Right Age To Start Investing? The Answer May Surprise You!

There seems to be a broad understanding in life about the ‘right’ age for certain milestones in life, such as buying a house/car, marriage, having children, retiring, etc. But there doesn’t seem to be any defined timeline for starting your investment journey. There is no conversation around it. Other than vague advice around putting money in a fixed deposit or buying life insurance, we rarely ever receive definitive guidance on when to do our first SIP, allocation to equity and debt investments, the risk appetite for such investments, etc. These are things that you figure out eventually, perhaps at a much later stage in life.

The reason for this is that for most people investment planning is still an alien concept and not something high up on their ‘Life Goals’ list. By the time most people realise the value of regular investments, it might just be too late for them. But don’t panic if you are one of those people who are yet to start investments because the good news is there is no right age to start investments. The right age/time to start investing is NOW.

Seriously. If you are reading this article and have not yet started investing, then stop reading and go do it now. Because when it comes to investments, the sooner you start the better. Irrespective of when you start, there are enough investment products out there to help you plan for your financial needs.

However, before investing you must have clarity on three aspects – investment horizon, financial goal, and risk appetite. Your investment horizon is the period over which you want to remain invested in a scheme which can be classified as short-term, medium-term, and long-term. Financial goals are personal objectives you strive to hit as you move forward in life such as paying off a debt, children’s education, and marriage, saving for retirement, buying a car/property, etc. Last but not the least, your risk appetite. You must also determine the amount of risk you are willing to take. Your risk appetite and time horizon will then help decide the allocation to various asset classes in your portfolio.

Starting Early

Starting investments at a young age is not only beneficial for creating long term wealth but also inculcates good financial discipline that will last a lifetime. ‘The early bird catches the worm’, aptly summarizes the importance of starting something early to reap maximum benefits. The sooner you start your investment journey, the better. Investors in their 20s have about 30 years left till their retirement. Their risk tolerance will be relatively higher as they will be invested for a longer time horizon.  Such investors could consider having higher exposure to equity mutual funds in their portfolio, as the long investment horizon could smoothen the effects of market volatility on their portfolio.

There are different sub-categories of equity mutual funds. Some diversify by investing across sectors and stocks, some have a concentrated portfolio and some invest in select themes/sectors. Each of these sub-categories carries its own risk and investments must be done after careful consideration.

Starting in the mid-life/career phase

Around your 40s and 50s responsibilities increase. From taking care of ageing parents to children’s education, buying assets and retirement planning, all these responsibilities could alter your investment horizon and risk appetite. At this stage, you should start investing in instruments which offer higher stability through investments in debt as well as reasonable return potential via investments in equity. Hybrid mutual funds are a good fit for such investors as they invest in both equity and debt (some even invest in gold which could act as a good hedge against inflation). They aim to provide the best of both worlds – capital protection as well as the potential for significant returns. There are different sub-categories of hybrid mutual funds based on the quantum of exposure to equity and debt. Investors can choose from among these sub-categories depending on their risk appetite, time horizon, and goals.

Starting In The Later Part Of Your Career

Well, it is never too late to start. Look at Colonel Harland Sanders who started the fast-food giant KFC at age 65! At an age where people generally give up on work and settle to live a comfy life, he founded and made KFC a globally loved brand. This shows that age shouldn’t be a deterrent for anything, least of all your investments. However, considering that the time horizon for your goals might be comparatively shorter, you could consider investments in debt mutual funds which offer capital protection with comparatively better return potential than traditional investment avenues. Investors at this stage ideally avoid all equity exposure. However, those who wish to take equity exposure at this juncture, should ensure that it is a very small component of your overall investment portfolio because equity tends to be volatile in the short-term. Since your investment horizon is short, any correction in equity markets during that period could significantly alter the final value of your investments.

In a nutshell, we can rightly say that there is no right age to start investing but it is better start as early as possible. Whenever you choose to start investing, ensure that you invest regularly, in a disciplined manner, and stay on track to achieve your financial goals.