‘Time and tide wait for no man” – the relevance of this proverb here can be questioned, but nothing else about time came to my mind!
Though we all want to and must live in the present, when it comes to planning finances, the best approach is to dream far ahead in the future. It is your farthest financial goals that will give you the least trouble. It is all too lucrative to put off saving for a goal which is 15-20 years away and concentrate on the goal due next year. Well, emergencies apart, short term goals give you the least benefit of investing. What is the right time to invest for the maximum benefits?
Let us churn some numbers and see.
Saving first for short term goals makes every goal short term as by the time you finish a 3 year goal, your 5 year goal has only 2 years to go and becomes a short term goal. This makes you short sighted. Moreover you lose advantage of a saver’s best friend, time; the farther away the goal smaller your savings and more is the return component in the corpus. And you should get your calculations right to decide on the right time to invest.
For example, a corpus of INR 25 lakh accumulated over 15 years (at 9% return) requires you to save only 6770/- per month. Also the total money you have invested over these 15 years is INR 12.25 lakh that is nearly 49% of the corpus, whereas 51% or 12.75 lakh is what the corpus has earned as return over the period. That is a bonus of 12.75 lakhs, free!
Now if you were to try and accumulate the same INR 25 Lakhs in 7 years, then your monthly savings would need to be INR 21605, an increase in the savings amount by 219%! Also here, 72.5% of the corpus or INR 18.14 lakhs is your saving and only 27.5% or 6.86 Lakhs is what your corpus earns as a return over the period. A smaller bonus!
The earlier you start the more your earning gets reinvested and earns further return. Also in the longer term it is possible to average out good and bad periods in the economy and get good average returns. Thus time is an Investor’s best and loyal friend. And there is definitely no debate on what is the right time to invest for the maximum benefits – the sooner you start, the higher you earn!
So stop reading here and get your hands dirty. Seek advice, plan and start investing. Now is the best time to start.