Investing Early

I was talking to my friends brother who recently joined a software company, after a while we where discussing about investing. Then I asked him how much of savings he has, I hear him saying that it is too early for him to think about savings. The problem is that he fails to remember that age is proportional to the commitment and the commitment is inversely proportional to the savings power.

Some people in mid 30's say that "hey I got a home for 35Lakhs and I am paying an EMI of 35000 per month, thats a lot of savings so why should I invest extra". My question is why you consider your EMI as an investment? home loan has two components in it Principal and Interest. Buying an house is a good investment but did we really sell it in crisis situation? Real estate is a tough bet, you cant guarentee its appreciation, a slum clearence board or garbage dumping yard project near your plot may be a severe blow to its value, moreover it has poor liquidity.

Investing  is not only about preserving your capital, it is about earning modest interest with moderate risk. It is not neccessary that you need atleast 1 Lakh to begin investing. Starting early with waterver money even with Rs.2000 per month will also have a great impact on your savings on later part of your life. I will present a small illustration which will show some power of investing early

Let's compare two friends – Ondipuli and Kaipulai. Ondipuli starts saving Rs 50000 per year from the time he is 25. After 10 years he decides to stop investing. By that time the investment grows to Rs. 8.77  Lakhs assuming 10% intrest. 

Ondipuli lets the Rs 8.77 Lakh grow and assuming that it continues to earn a reurn of 10% every year he would have been able to accumulate around Rs. 95 Lakhs by the time he turns 60. So the Rs 5 Lakhs (50000 * 10) he had invested in first 10 years has grown to Rs 95 Lakhs.

On the other hand, Kaipullai starts investing Rs 50000 per year when he is 35 and continues investing this amount every year till he is 60. i.e for 25 years. Assuming he also earns a return of 10% every year, he would have been able to save only Rs. 54 Lakhs.

Even after investing Rs 50000 regularly for 25 years, Kaipullai has managed to accumulate Rs 54 Lakhs, which is around Rs 41 Lakh less that Ondipulli.

As the corpus grows the impact of compounding is greater. Ondipuli as we know managed to accumulate Rs 8.7 lakh after 10 years and then stopped investing after that and left the corpus grow for another 25 years. Let us say he had allowed the corpus to grow only for 20 years then he would have accumulated a corpus of Rs 59 lakh, by letting it grow for another 5 years he managed to get Rs 36 Lakh more.

What are you waiting for? Start investing right away!!!


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