Ask most experienced investors what they would do differently, and the answer is often the same: they would have started sooner. In India, where the average household saves a large share of income but often parks it in low-yield options, the effect of delay is rarely appreciated. A SIP Calculator makes this cost of waiting visible by showing how two people investing the same monthly amount can end up with very different results simply because one began earlier. Those planning for the later stages of life can also turn to an SWP Calculator to understand how a corpus may support future withdrawals. Both tools reinforce one lesson: time is the most valuable asset you have.
A Tale of Two Investors
Imagine two friends, Rohan and Meera. Rohan begins to invest Rs 5,000 every month at the age of twenty-five and continues until he reaches sixty. Meera begins to invest at the age of thirty-five and continues until she turns sixty. She invests a sum double that of Rohan’s every month. If both friends earn the same rate of return -say 12 per cent per year- on their investments, Rohan’s total contribution would amount to Rs 21 lakh while Meera’s would be Rs 30 lakh.
While Meera is investing more money, Rohan continues to have an advantage over her as he had ten more years to let his money grow. His extra years gave his investment an edge over Meera’s. The example is hypothetical, but it underlines a vital truth.
Avoid the temptation to procrastinate
Most young professionals convince themselves that there is always a more appropriate time to begin investing. They tell themselves that they will begin to invest when their next salary increment comes through, or after getting married or after buying that fancy car. The time between the next milestone and the one after that is when too many young Indians choose to defer their investment decisions. The longer you defer, the more money you need to begin investing to catch up with those who began earlier. Someone who postpones his decision by five years will have to invest almost twice as much as he planned to in order to make up for the lost time. That is usually when life throws the heaviest responsibilities your way.
You don’t need to be earning a lot in order to begin investing. Several mutual fund houses have a minimum monthly contribution of just Rs 500. A first-time investor can begin with this amount and increase it steadily as he becomes more comfortable with the swings in the market
As an amateur investor, it is important that you get comfortable with the idea of the market’s ups and downs. You need to understand what happens when the value of your mutual fund drops by 30 per cent only to recover some months later. This will prove to be a valuable lesson in market education. You can increase your monthly contribution by 10 per cent every year as your salary increases, until the day you feel confident enough to raise it further.
The most common excuse for not investing as an amateur is that he does not know enough about the market.
Begin with something as simple as a diversified portfolio of index funds or a good flexi-cap fund and educate yourself about the market. Another common reason cited by amateurs for not investing is due to their fear of losing money. While it is true that markets are volatile, a long-term view of your investments can negate a large part of this fluctuation. If that doesn’t convince you to begin investing, you could always begin with a hybrid fund that has a higher debt-to-equity ratio and move on to more equity-oriented mutual fund schemes as you grow more confident.
The last excuse amateurs cite for not investing is their existing financial liabilities. Clear off outstanding credit card dues first and make systematic payments towards your home loan. A home loan at a low rate of interest does not mean you need to put your investments on hold.
The best time to buy a ticket is always when one has already boarded the train. The second best time to begin investing is now. Decide on the amount you would like to invest every month, choose your scheme and let time take over the rest.