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Start early, stay invested

When you do the numbers, the case for starting early becomes even more compelling.

You may have heard this before, more than once, start investing early. The earlier you begin the bigger your retirement kitty will get. For younger earners, however, there is nothing further than retirement on their minds. 

Nevertheless, when you do the numbers, the case for starting early becomes even more compelling. Thus, instead of listening in words to all the reasons and the ways in which early retirement planning can benefit you, just look at the numbers. 

Your Rs 1000 every month for 35 years has morphed into Rs 65 lakhs, simply by remaining invested. The total investment over this period would be Rs 4.2 lakh.

Sooner and longer the better

Let’s assume you can invest only Rs 1000 a month and with that you begin a systematic investment plan with that in an equity mutual fund at the age of 25. Here is how the money is likely to grow assuming a compounded annual return of 12%. It doesn’t mean that you will get a 12% return each year, but rather than return equalised over the years can potentially be 12% per annum.

Accumulated funds after being invested for 10 years - at 35 years – Rs 2.32 lakhs 

Total gain – Rs 1.12 lakhs

Accumulated funds after being invested for 20 years - at 45 years – Rs 10 lakhs 

Total gain – Rs 7.6 lakhs

Accumulated funds after being invested for 30 years - at 55 years – Rs 35.3 lakhs 

Total gain – Rs 31.7 lakhs

Accumulated funds after being invested for 35 years - at 60 years – Rs 65 lakhs! 

Total gain – Rs 60.8 lakhs

Your Rs 1000 every month for 35 years has morphed into Rs 65 lakhs, simply by remaining invested. The total investment over this period would be Rs 4.2 lakh.

If instead, you start at age 30, assuming you retire at 60, you may stop investing and withdraw at that point. By letting go of the last 5 years of remaining invested – you are letting go of Rs 30 lakhs!!

There are really two lessons here, start early and remain invested for as long as you can. For every decade you remain invested, returns are added up disproportionately. In the first decade gains were Rs 1.1 lakh and this increased to more than Rs 7 lakh in the next decade. The last 5 years gained Rs 30 lakh as the accumulated value till then had increased too.

That is why you can’t make up for time by investing larger amounts in the last decade. Time is the biggest compounder of gains. 

Don’t forget the top ups

What you can do to enhance your returns further is keep adding to your SIP as the years go by. Every year, increase your SIP amount proportionately as your income increases. In years where income is static, think about increasing your SIP amount by a small figure like 10%. This consistent bumping up of your regular investment, left invested for decades, will once again give you good returns, just before you begin your retirement journey. 

Returns is only one side of the coin. The other side is inflation. Inflation makes sure that the value of your money declines every year and this too compounds. In order to maintain your lifestyle post retirement, it is imperative not only for you to begin investing early, but to remain invested for as long as you can and give your SIP contribution, bonus bump ups as your salary increases. 


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