Question

How important is it for an individual to begin investing early for retirement? Do you think an individual should seek high-return investments when they are still relatively young?

Original response please

Answer 1

It is highly important for an individual to begin investing early for retirement. The reason behind is time value of money.

If he starts investing early for retirement he can take advantage of compounding and can increase his wealth as compared to investing the same amount in later years.

For example if he has $1000 to invest. Given the same rate of return of 10%.

option a - he invest $200 each year for 5 years.

option b - he invests nothing for 3 years and $500 at the end of year 4 and year 5.

In the above example we ca see that the option A where same amount was compounded over a period od of 5 years has yeilded a higher future value for the investment.

Another benefit of investing early for retirement is that he can earn higher returns on his investment by increasing is risk exposure since risk taking ability is higher of an indiidual in a young age.

Yes, an individual should seek high-return investments when they are still relatively young. This is because at a young age his risk ability is higher which can help him earn higher returns on his investments. Risk exposure of an individual is affected by various factors, but keeping all other factors contant, an individual should take higher risk.