This is because by starting the investment early in life, person is giving his investment long period to grow. Even if it is a small amount, it still forms a decent saving portfolio for the person. But he has to follow the principle - save prudently, invest regularly and reinvest the returns. Here even his returns participate in further growth of his corpus.
Let's take an example to illustrate this: -
A invests Rs. 2500 regularly every month starting at age 25.
B (of same age as A) keeps procrastinating his investments. And after 10 years he (age 35) starts investing Rs. 5000 per month.
Assumption - Rate of return on their investment is 12 %.
After further 10 years when A and B will turn 45, their corpus will have huge difference as
A will have a corpus 22.78 lakh while
B will have nearly half 11.09 lakh.
Here we see though B invested twice the amount as much as A invested, he lost in duration of his investments. This is the magic of compounding.
Give your money time to grow, it will multiply and come back to you only with some incentive.. :)
That's the real Funda!
Money Grows Like A Tree; Not on Some Tree that one can pluck it at will.
So start early and build your Money Tree!!
Very true and well written.
ReplyDeleteThere is as they say no shortcut to success.
But I would like it if you answered some questions.
What if the ROI is negative ?
( The drops can even evaporate ! )
What about the right time of investing ?
( You can't pour in a bucket until the hole is sealed )
How do you judge the company ?
( Somebody can cut the tree right )
Hey Maulik,
ReplyDeleteMy intention here is to let people know how it benefits from starting the investments early and how power of compounding can multiply their wealth. That was just an assumption to consider ROI as 12%.
You are right in the sense during global recession it is even possible for ROI to be negative, but then again its a cyclical phenomenon - you will be green in one cycle while red in the other.
You don't have to track the market continuously ,for that you can choose route of mutual funds to achieve necessary diversification and to minimize your risk.