Stocks 101

Why Everyone Should be Investing?

Everyone wants to become rich. And they want it in a quick and simple way. But is there anyone you know who has become rich effortlessly?

Becoming rich or financially free is a slow process. There is one major life skill many of us are missing, and it is hurting us in a big way. That is understanding how compound interest works.

The impact of compound interest is important and investors must have basic knowledge of this concept to assess the returns from various investment instruments.

The important thing before starting your investment journey is to develop the proper investor mindset. If you want to know how then read the post on it.

How can you grow your money through compound interest?

Yes, by investing your money, but not by the mere saving of money i.e., parking your money in a bank account.

Investing your hard-earned money in assets is very important. Investing is a life long affair and one has to devise an efficient plan to save and invest throughout the working years.

Let me give you 2 scenarios to explain the power of compound interest and investing.

Read: 10 simple ways to earn money online without any investment

Scenario – 1

Let us understand what happens if one decides not to invest.

Assume you earn Rs 50,000 per month. Let’s say your expenses are around 30,000 therefore you are left with Rs 20,000 in surplus every month. That means you spend 60% of your earning. You choose not to invest the surplus amount (i.e., 40% of earning) and leave that cash as-is.

The question is, how much money will you have by the time you retire?

Let us make some math here. Before that, we shall make some assumptions:

  • Your salary hikes 10% every year
  • Your expenses increase 8% every year
  • You are 25 years old now and you plan to retire at the age of 50
  • The monthly surplus of Rs 20,000 is retained in the form of cash

The below table shows how much you will accumulate after 25 years of hard work. Here your expenditure is assumed to be 60% of your income and savings to be 40%.

YearsEarningExpenditureCash remained
16,00,0003,60,0002,40,000
26,60,0003,88,8002,71,200
37,26,0004,19,9043,06,096
47,98,6004,53,4963,45,104
5 8,78,4604,89,7763,88,684
69,66,3065,28,9584,37,348
710,62,9375,71,2754,91,662
811,69,2306,16,9775,52,254
912,86,1536,66,3356,19,818
1014,14,7697,19,6426,95,127
1115,56,2457,77,2137,79,032
1217,11,8708,39,3908,72,480
1318,83,0579,06,5419,76,516
1420,71,3639,79,06510,92,298
1522,78,49910,57,39012,21,109
1625,06,34911,41,98113,64,368
1727,56,98412,33,33915,23,644
1830,32,68213,32,00617,00,676
1933,35,95014,38,56718,97,383
2036,69,54515,53,65221,15,893
2140,36,50016,77,94423,58,556
2244,40,15018,12,17926,27,971
2348,84,16519,57,15329,27,012
2453,72,58121,13,72532,58,856
2559,09,84024,26,86934,82,971
Total3,34,36,059

After 25 years of hard work, you accumulate 3.34 Crore. This amount is enough to sail you through roughly 10 years of post-retirement life (Inflation is included). This is with the assumption that you don’t intend to work post-retirement. 10th year onwards you are likely in a very tight spot with literally no savings left to back you up.

Read: 40+ business ideas which gives you huge profits in India

Scenario – 2

Now lets figure out what happens if you choose to invest the monthly surplus.

Instead of keeping the cash idle, now you choose to invest the cash in an investment option which grows at 12% per annum. For example, at the end of the first year, you choose to invest your yearly surplus of 240000 at the rate of 12% for the next 24 years. In the 2nd year, you retained 271000 which is again invested at the rate of 12% for the next 23 years, so on and so forth.

Let us gain do the math. The below table shows how much you will accumulate after 25 years of hard work. Here the difference being you invest money rather than save it.

YearsCash retainedReturn Over Investment
(@ 12% interest)
12,40,00036,42,870
22,71,20036,75,396
33,06,09637,03,856
43,45,10437,28,451
53,88,68437,49,359
64,37,34837,66,774
74,91,66237,80,863
85,52,25437,91,798
96,19,81837,99,728
106,95,12738,04,823
117,79,03238,07,216
128,72,48038,07,060
139,76,51638,04,482
1410,92,29837,99,613
1512,21,10937,92,579
1613,64,36837,83,499
1715,23,64437,72,486
1817,00,67637,59,652
1918,97,38337,45,097
2021,15,89337,28,926
2123,58,55637,11,233
2226,27,97136,92,110
2329,27,01236,71,643
2432,58,85636,49,918
2534,82,97134,82,971
Total9,34,52,433

At the end of 24 years, the 1st year’s investment of 240000 grows to 3642870, this is at 12% growth. Likewise, the 2nd year’s grows to 3675396.

If you add up all the final values, you get a whopping corpus of 9.34 Crore, which is almost 3 times higher than what you would have otherwise saved. Hence this is why should you invest.

This amount is enough to sail you through 30 years of post-retirement life (Inflation adjusted). Isn’t it enough?

Now that you are convinced investing is the only way for financial freedom. Let’s dig deeper into this.

But here is a bigger question – Where to invest?

The first thing when it comes to investing is to choose the right platform. By right platform I mean the investmest must:

  • Fight inflation
  • Create wealth
  • To meet one’s financial aspirations

Here are the most popular assets one can invest in:

  • Fixed income instruments (such as bonds, debentures)
  • Equity (Share market)
  • Real estate
  • Gold

Each of the above investment options has its risks and rewards. One must choose the platform according to his/her risk appetite.

In this series of posts let’s have a basic understanding of stock market.


Thanks for reading. Stay safe.

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