"This is oringal article written my me years ago. I wasnt MBA then. I was just like any other youngester with dreams in my eyes. Till today, even though I have moved from India to North America and have gone through lots of experience in life including my MBA, I keep this article just to remind me my one of the best habbit."
Benefit of long term Investment
Road to Wealth accumulation
I need a luxury life. I need a big farm house. I need a lavish life. But no way possible with my current income. Yes, this is what run in most of our minds.
So if you think after reading this article you are going to have that magic wand to make money. I am sorry to say that you will be disappointed. Yes if you think you will get to know the road to reach that level where you can have enough bank balance which is growing with every passing year, then you will be delighted.
Note : All calculations are based on Indian standards and in Indian currency 41 rupee = $1, you can calculate according to your local currency and scenario.
Your current scenario :
You earn for example say Rs.30,000 a month. You think of saving it. Sometimes you put Rs.5000 in FD or sometimes you put in mutual fund but with no discipline. You think that Rs.5000 saved a month is not going to make millionaire.You are wrong, it does.
How, read on?
Investing with discipline and waiting your investment grow over years lead to huge accumulation of wealth. If you are in your mid 20s then there is no better investment than equity mutual fund which by any standard is expected to give you compounded annual growth rate of 20%. If you take some pain which is worth taking and buy some good stocks, rotate them at right time by which I mean over a period of 2-3 years you are on road to compounded annual growth rate of 30% + in growing economy like India . Above listed return rate is what have been provided by Indian stock market and India related funds.
Now let me show you your reward if you invest for a decade with patience.
Look at the table below which show the final accumulation by just investing a sum of Rs..5000 or Rs.10000 but regularly every month. For a period of 10 yrs or 20 yrs.
Return are if you get annual rate of return 10%, 20%, 30% compounded annually
Amount Invested/Month * No. of years * Rate of Return = Final Wealth
Road to Wealth accumulation
I need a luxury life. I need a big farm house. I need a lavish life. But no way possible with my current income. Yes, this is what run in most of our minds.
So if you think after reading this article you are going to have that magic wand to make money. I am sorry to say that you will be disappointed. Yes if you think you will get to know the road to reach that level where you can have enough bank balance which is growing with every passing year, then you will be delighted.
Note : All calculations are based on Indian standards and in Indian currency 41 rupee = $1, you can calculate according to your local currency and scenario.
Your current scenario :
You earn for example say Rs.30,000 a month. You think of saving it. Sometimes you put Rs.5000 in FD or sometimes you put in mutual fund but with no discipline. You think that Rs.5000 saved a month is not going to make millionaire.You are wrong, it does.
How, read on?
Investing with discipline and waiting your investment grow over years lead to huge accumulation of wealth. If you are in your mid 20s then there is no better investment than equity mutual fund which by any standard is expected to give you compounded annual growth rate of 20%. If you take some pain which is worth taking and buy some good stocks, rotate them at right time by which I mean over a period of 2-3 years you are on road to compounded annual growth rate of 30% + in growing economy like India . Above listed return rate is what have been provided by Indian stock market and India related funds.
Now let me show you your reward if you invest for a decade with patience.
Look at the table below which show the final accumulation by just investing a sum of Rs..5000 or Rs.10000 but regularly every month. For a period of 10 yrs or 20 yrs.
Return are if you get annual rate of return 10%, 20%, 30% compounded annually
Amount Invested/Month * No. of years * Rate of Return = Final Wealth
All calculations in Rupee (Indian Currency $1 = Rs.41) and according to what Indian middle class saves. Please make your calculations as per your native currency and saving standards. The prime idea of this example is to show the power of compounding over the years.
5000 * 10 * 10 = 1007287
5000 * 10 * 20 = 1721554
5000 * 10 * 30 = 2956070
5000 * 20 * 10 = 3619931
5000 * 20 * 20 = 12380956
5000 * 20 * 30 = 43707972
10000 * 10 * 10 = 2014575
10000 * 10 * 20 = 3443108
10000 * 10 * 30 = 5912141
10000 * 20 * 10 = 7239863
10000 * 20 * 20 = 24761912
10000 * 20 * 30 = 87415945
If you doubt these figures then go to SIP calculator at the link and calculate yourself : http://www.ecst.csuchico.edu/~chetan/cgi-bin/sip.html
Now 10% return if you want you can get it out of debt and equity mixed fund. For 20% return you need to choose equity fund. For 30% return you can get it out of mutual fund but the record till date does not favor so high return . But mind you in a good year some mutual fund in India have even delivered 100%+ returns, but that are some exceptions. In the whole over long run equity has delivered highest returns but at the same time it is riskier than other asset classes.
Yes one more point : if you need some money for a short period of time say 1-2 years take a loan against your mutual fund or other asset as loan you will get at around 11% reducing (in India) and your underlying asset will grow at 20% + compounded. So here too you stand to gain.
It is that simple but we don’t make calculations and miss out the opportunity. Some say I need wealth today what I will do it after 10-15 years. OK if you don’t need it then, accumulate it and gift it to me at the end of 15-20 years.
I hope after reading this, you will start investing today itself as each day you miss out, you are losing that interest growth on your investment.
So happy investing and be rich.
All the Best. Any query, you can mail me at bajwaharman@yahoo.com. I will try to answer it.
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