The most common question asked by people all around the world is “What’s the right time to Invest“.
The answer to this question lies in just two words “RIGHT NOW”. An example will help you better understand why !!!!
Two Investors named Investor A & Investor B started working at the age of 25. Investor A decides to Invest from 1st year for his retirement. So he started investing Rs.50,000 per annum. After contributing Rs.50,000 for 5 years he was not able to contribute because of sudden increase of liabilities due to demise of his father. Invested amount till now was not withdrawn & kept on earning interest till he turned 60.
Investor B had a different plan in mind & he decides to save from 35th year onwards. He started investing Rs.50,000 per annum for 25 years without a single break .
For ease of calculation Rate of Investment over the whole period is taken as 10 % for both A & B.
Total Amount Invested by A = 50,000*5 = Rs. 2,50,000
Total Amount Invested by B = 50,000*25 = Rs.12,50,000
Obviously both A & B will earn some interest @ 10% on this amount. Amount accumulated by A & B at the beginning of 60th year will be:
With just Rs.2,50,000, Investor A was able to accumulate Rs. 58,59,169 whereas after investing Rs. 50,000 pa for 25 years Investor B was able to accumulate only Rs.54,09088. Clearly Investor A is the winner.
That’s the Magic of Compounding where over a long period of time interest income multiplies at such a fast rate.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein
To summarize: The power of compounding is the single most important reason for you to start investing RIGHT NOW. Remember, every day that your money is invested, is a day that your money is working for you.