Have you been wanting to invest but been postponing it for some reasons every time? Did you fail to save this month as well and thus decided to delay investing again? Well, if that is what you have been doing, read on to find out how delay is expensive with each passing day.
If you are someone who just started working or is already working, now you have regular income. However, ask yourself if you will be able to work throughout your life. There will be a time when you will not have a regular income anymore. So that’s where investing comes into picture.
Some of you may say that a savings account fetches you 7.5%-8% returns. But returns on investments range higher and have also reached more than 18%. Consider the loss that you have been facing. If this data has still not convinced you to start investing, read on to find relatable scenarios.
Let’s say Hardy starts investing at the age of 26. He decides to retire at the age of 60 and thus has 34 years to plan it out. In the first year he invests Rs.2000 monthly and then increases his investment by 10% annually. Assume the return on the investment is 11% (this is taken based on the average returns of an equity-linked fund). Let’s see the three options that Hardy has:
As you can see in the table above, the more Hardy delays his investment, more are the costs of the delayed investment. If Hardy starts early, he’s able to accumulate a noticeably large amount of wealth compared to the delay. SIP investments fetch better returns when you start early. This way, the duration of investment is longer. With a SIP starting as low as Rs.100, the least you can do is just start investing.
When you start to invest early, the compounding effect comes into picture. Compounding works wonders when you start early. Let’s assume in the previous case, Hardy invests Rs.30,000 in an instrument that yields 10% returns. So, in the first year the return generated will be Rs. 3000 (10% of 30,000). Now Hardy decides to re-invest the amount along with the returns (Rs.30,000+Rs.3000). Thus, he invests Rs.33,000 next year. In the second year, the returns generated increase and reach Rs. 3300. Hardy re-invests the amount along with the returns. This is how compounding works. The initial investment along with the returns compounds itself to yield higher returns with time. Thus, avoid delay.
Now, let’s assume that in all three scenarios, Hardy increases his monthly investment in such a way that his total investment remains same in all cases.
As seen in the table above, the returns generated for each year varies significantly even if the total investment during each duration remains the same. The first scenario with 34 years of duration has the longest time duration and thus yields the fruits of the compounding effect. In the last two scenarios, it clearly shows how delay affects returns on the investment. The conclusion- Start early.
What are things that you need to keep on your mind then:
Importance of starting early without a delay:
We understand that everyone may not have the same financial abilities to invest a big amount monthly. You might have just started earning. So you can start investing Rs.100 monthly. The thing that matters here is the ample time that the investment will have to grow.
SIP- the easy mode to invest:
Just like other bills ands expenses that you pay monthly without any delay, similar is the case with a SIP. Start investing without any delay every month. Then watch your wealth grow over the period. With SIPs, the amount you decide to invest monthly gets automatically debited from your account on a fixed date. Thus, the process is hassle-free.
With SIP investing, you get into a discipline of saving a certain amount every month. This discipline leads to growing of wealth for your own secured financial future. But, you need to have the discipline to not withdraw your funds before your investment meets your goals. With the effect of compounding, the returns start to grow gradually over time. Thus, you get better returns compared to what you get in the initial years of investment where the pace of returns is relatively low.
Next time when you think that you do not have enough finances to start investing, now you know that SIPs start as low as Rs.100. You can always start with this amount and gradually increase your investment amount as you start earning more. Certain lifestyle changes will enable you to save more and you can invest for your future goals. But all you need to do is to start investing without any delay to let compounding work for your investments. Remember- good things take time, thus begin now or never!
Head to a financial planner now to make a financial plan for yourself and start saving.