Friday, December 12, 2014

The Magic of Early Investment

Have you started saving in early age?


Whenever I meet around 25-35 age of group and ask about saving and investment, they often don’t have clear view on this subject. For investment they totally depend on family, friends and relatives and friends. Most of them invest in traditional asset class like fix deposit, gold and real estate. Apart of this they even not bother about to know any other asset class. Every asset class has some virtue and drawback and not all asset class always suitable to all person anytime. Before and investment decision you should have proper knowledge about all available options.

I have discussed about many financial products in my earlier posts but today I want to discuss about the advantages of early saving. However, most people start investment after marriage or kids without realizing that they have started late. Here I share one example for understand the early saving concept. 

Two friends - Sachin and Mohit are of same age group of 35 and working in good reputed companies. One day they meet and discuss about family, future and finances. After discussion they were not able to arrive on a definite saving figure which was needed to save for their future. They had contacted their common friend Arvind, a financial planner and met him in his house on one Sunday. Sachin had started SIP of Rs 5,000 every month in a good equity scheme 9 year back when he was 26. Mohit had done the same thing but he has done it 5 year back when he was 30. Now the present value Sachin’s investment is 10.16 lakh whereas Mohit’s current investment value is now 4.19 lakh only. Both had invested same amount in same scheme but the only difference is time. Mohit had started after 4 year from Sachin’s investment and the difference in front of you.

Now they are planning for retirement at the age of 55 after 20 year. If they continue the same amount every month in the same scheme, at the time of retirement Sachin will get from scheme 1.91 (approx 2 Crore) and Mohit will get only 1.12 Crore. The difference in their amount is due to the delay cost of investment mere 4 year only. If Mohit could start with Sachin then he would also get the same amount 1.91 crore.

Now you people will think either these figure is wrong or there are some mistake. It is due to the power of compounding. Regarding ‘power of compounding’ renowned scientist Albert Einstein once said “Compound interest is the eighth wonder of the world. He, who understands it, earns it. He, who does not, pays it.”

Always remember my friends, time is the most important element in any investment. The investment amount does not matter whether it is small or huge. Starting investment in early age make different from those who start invest late.

If you have doubt about the numerical value in this post and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for seminar in your city just drop the mail.
Warm regards,
Arvind Trivedi
Certified Financial Planner

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