Does investing early matter?

July 11, 2024

Remember that story of the chessboard and rice? A wise man presented a chessboard to a king, asking for one grain of rice on the first square, two grains on the second, four on the third, and so on, doubling the grains on each subsequent square. The king, thinking it was a modest request, agreed. However, by the 64th square, the number of grains amounted to 18,446,744,073,709,551,615 – far more than anyone could have imagined.

Why are we talking about this now? I think this is one of the most powerful stories about compounding. When it comes to saving, even a small amount of money invested for long years can actually make a world of difference. Let’s see this with an example. 

For instance, if Anusha begins a ₹10,000 SIP (Systematic Investment Plan) at the age of 30, she’ll have an impressive ₹3.53 crore by the time she turns 60, assuming a 12% annual return.

Now, if Rajesh starts his SIP at 40 by doubling his SIP to Rs 20,000, he’ll accumulate only ₹2 crore by 60. That’s ₹1.53 crore less than Anusha for missing on 10 years despite increasing the investment amount. To match Anusha’s savings of ₹3.53 crore, Rajesh would need to invest ₹35,329 monthly for 20 years. 

Compared to Simran, who starts her SIP at 50, will have only 10 years to invest. Even if she triples her SIP amount to Rs 30,000 per month, she will save only ₹69.7 lakh by the time she’s 60. Again, to match Anusha’s ₹3.53 crore, Simran would need to invest a staggering ₹1.52 lakh monthly for ten years.

This clearly shows the immense value of starting early.

Think about it. You may plan to save more in the future, but life is unpredictable. Even if you’re willing, you might not have the financial ability to save large amounts later. Market returns can also fluctuate. Using the formula FV=P×(1+r)^n, where P is the investment amount, r is the return rate, and n is the time, none of these elements could be under our control. Delaying your investment might make it difficult to achieve the desired corpus. 

I strongly believe that regular investments from an early stage not only help you save more but also inculcate a disciplined habit of spending only after investing. That latter muscle is hard to build. 

So, start your investment journey early, no matter how small the amount. The benefits of compounding and disciplined investing will pay off significantly in the long run.

Personal Finance, Varsity


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