Back to basics on investing

DEEPALI SEN gives you a primer into the  world of investing

Ever wondered why people with similar inflows and similar expenses land up looking as far apart as possible, in terms of their financial worth, after many many years. The answer lies in their investing behaviour. The three pillars on which the mathematics of investing is founded are; how much you invest, for how long you stay invested, and at what rate have you invested? Around these three variants we all walk different paths based on our beliefs, our understanding, our biases, our fears, our needs, our decision taking ability and our execution skills. And that’s why we land up where we are standing today. Our choices shape our chances of having a small, average or large net worth.

Many things aren’t equal but all of us get the same 24 hours a day, seven days a week Let’s examine how investing weaves its magic and the varying outcome of our actions. We are going to look at the attitude of investing for four brothers belonging to the same age group.

In the following scenario they all brothers invest for 15 years at a rate of 12%, compounded annually.   Depicted through a chart below.

A small monthly difference of Rs.5, 000 can see a fortune as apart as Rs.25 lacs over 15 years as seen in the cases of Bharat and Shatrughan Diamonds are chunks of coal that stuck to their jobs long enough

The following story narrates the outcome when the input of ‘number of years’ invested for is different in each case.  Ram, who gives his investments 20 years to perform and invests only 4 times of what Shatrughan has invested (over 5 years) ends up with a corpus which is more than 12 times that of Shatrughan’s

 Passion is energy and strength. Inject your investments with this energy The third variant demonstrates its power through the following example. All the brothers invest same amounts over ditto number of years, yet Ram emerges nearly two times wealthier than Shatrughan at the end of 15 yrs.

 Check out the lengths of the various bars.  At times not taking risks in asset classes like equities can expose one to the risk of sub-standard returns, means returns which are below inflation. The author is a certified financial planner  and can be accessed att deepali.sen@srujanfa.com

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