Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Time makes all the difference

Posted by Muthu on December 20, 2014

Let us assume you’ve invested Rs.10,000 every month for last 20 years (from 1’st January 1995 to 1’st December 2014) in HDFC Equity Fund. You would have invested totally Rs.24 lakhs. The value of the same as on date is Rs.5 crores. This works out to an annualised return of 22.98%. Your investment (capital) would have multiplied by 20.8 times.

Let us assume you’ve invested Rs.10,000 every month for last 15 years (from 1’st January 2000 to 1’st December 2014) in HDFC Equity Fund. You would have invested totally Rs.18 lakhs. The value of the same as on date is Rs.1.47 crores. This works out to an annualised return of 22.44%. Your capital would have multiplied by 8.1 times.

Let us assume you’ve invested Rs.10,000 every month for last 10 years (from 1’st January 2005 to 1’st December 2014) in HDFC Equity Fund. You would have invested totally Rs.12 lakhs. The value of the same as on date is Rs 32.64 lakhs. This works out to an annualised return of 17.53%. Your capital would have multiplied by 2.7 times.

Let us assume you’ve invested Rs.10,000 every month for last 5 years (from 1’st January 2010 to 1’st December 2014) in HDFC Equity Fund. You would have invested totally Rs.6 lakhs. The value of the same as on date is Rs 9.94 lakhs. This works out to an annualised return of 18.61%. Your capital would have multiplied by 1.6 times.

In all the above 4 scenarios, you’ve invested 10K a month. Whether you took home Rs. 5 crores or Rs.1.47 crores or Rs.32.64 lakhs or Rs.9.94 lakhs would have depended on whether you did SIP for 20 years or 15 years or 10 years or 5 years respectively.

You know that we encourage you to do a SIP for at least 10 years. We also strongly encourage those who are in their early forties or below to consider investment tenure of not less than 20 years. Time makes all the difference.

In all the above periods, the annualised return was around 18% or more. Still for compounding to create big wealth it needs time. There is no short cut. Any one promising you a short cut is lying. I repeat, compounding needs time. Memorise this and give sufficient, rather a long time for your investments to create a fortune.

In the above example, out of Rs.5 crores, Rs.3.5 crores got added to your wealth between 16th and 20th year. Don’t forget this. It’s time that adds to wealth.

I would like to repeat here once again what Morgan Housel has shared about Buffett:

“Warren Buffett is a great investor, but what makes him rich is that he’s been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.

Most people don’t start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That’s unfortunate, and there’s no way to fix it retroactively. It’s a good reminder of how important it is to teach young people to start saving as soon as possible.”

One Response to “Time makes all the difference”

  1. Nishanth Muraidhar said

    True, time and consistency matters a lot

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