this is reposted because i have written a sequel to this…and that will appear in a couple of days…
When a young enthusiastic kid (she reads the blog and finds it embarrassing if her name is used!) came up to me and said ‘Sir, if I have Rs. 10 crores in my life, I will feel rich’ to me it was a signal of poor understanding of compounding! One needs to know the impact of having Rs. 10 crores today and the impact of having it 30 years later!
Let me explain. This kid is 23 years of age has a nice degree in finance and a good career waiting ahead of her. She will inherit a little money from her parents, a house in Mumbai (say current price of Rs. 1 crore), marry a similar profile guy and start life reasonably well. This is perhaps the second generation that is starting with the parents providing a head start instead of asking for support in their old age.
So with no ‘pay back’ that they have to do, they can aggressively invest. Assuming that the house appreciates by 10% per annum (guessing) the value of her house will go from Rs. 1 crore to about Rs. 32 crores by the time she is 59 years of age.
Let us assume she does a SIP in an equity fund and her investments look like this:
|Periodicity of payments:|
|Starting Age||Retirement Age|
She has not saved a dime till now, but assuming that she starts a SIP of Rs. 10,000 a month slowly taking it up to Rs. 100,000 a month by the time she is 54 years of age, and assuming the interest rates mentioned in the table, this will also accumulate about Rs. 10.25 crores-this on an investment of Rs. 1.35 crores!
That is the power of compounding.
Will she be able to make these investments? It looks like a breeze. There will be a time in life when she will take a break for having and bringing up children, but I am assuming that her husband’s investing will more than make up for the gap. Her husband will pay for all the household expenses and will also be able to invest some more money on his own.
This brings us to the question – What will be her salary when she is making these kind of SIPs?
Well she will earn about Rs. 4.5 L to start with, earn about Rs. 13L at the age of 35 years, earn about Rs. 25 lakhs at the age of 45 and will retire on a salary in excess of Rs. 45 lakhs. All these are per annum rates, so post tax SIPs ranging from Rs. 10,000 now to Rs. 100,000 around retirement time is surely affordable.
The conclusion is simple:
-she will have a net-worth in excess of Rs. 25 crores by the time she retires…and she will require more than that for her retired life.
COMMENTS: She has read my book, she is smart and she is doing a SIP of Rs. 10,000. As long as the ‘men’ in her life do not interfere with her money management skills, and she does not fall to the conventional wisdom ‘buy real estate – God does not make it anymore’….she will have her Rs 50 crores, not just 10!
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