Compounding is also one of the reasons why you must invest as early in your life as possible, even if the amount that you are planning to invest is small.
SIP (Systematic Investment Plan) is the best way to achieve the same too.
Many people keep waiting to have enough before they could start investing. In fact, the key to wealth creation lies in starting to invest immediately and staying at it for a long period of time. Let's understand this with the help of this example.
Bunny - A planned guy, started investing at the age of 25
Avi - A bit laid back, started to invest only at the age of 35.
Bunny Invested 10,000 per month for 30 years, investing a total of 36 lakhs, whereas Avi started late so he invested 15,000 per month for 20 years, totalling his investment of 36 lakhs and matching Bunny's Investment.
At the age of retirement at 55, Bunny makes 6.92 crores, 3 times more than Avi, who makes only 2.24 crores.
Bunny has the edge over Avi for starting 10 years early and continuously investing even if it is with smaller amounts.
Now what if Avi wants to achieve the corpus of 6.92 crores that Bunny did. How much will Avi have to invest to achieve that?
Well given that Bunny is making 3.5 times more than Avi at the age of 55, Avi will have to invest 3.5 times more than what she was investing originally. Avi will have to put aside INR 46, 240 per month from the age of 35 to 55 i.e. a total investment of 1.1 crores. Versus Priya invests only 36 lakhs to achieve the corpus of 6.92 crores.
Now one thing that is very clearly evident from the case is that the investing style is the difference in their portfolio and how Starting early can make all the difference in your returns. Bunny started 10 years earlier than Avi in his 20’s and he achieved a higher corpus by over 4.5 crores. Another best thing done by Bunny is he stayed invested for a long period of time. i.e. 30 years.
|Maturity Date||At age 65||At age 65|
|Maturity Amount||6.92 crores||2.24 crores|
|Total Amount Invested||36,00,000|| |
So the 2 things that create magic for your investments are
2. Investing for long……….. Long term.
When it comes to investing, the earlier you start the better, the compounding effect grows your money exponentially.
These can give you astonishing results, so what are you waiting for! Start today.
That is the power of compounding taking effect for the investor who started early.