Source/Contribution by : NJ Publications
Procrastination is something almost every one of us is guilty of. We tend to put off things till later, make excuses for not doing something we should have prioritised, waste time on social media on doing things which are unimportant. While a little procrastination does not hurt, procrastination with important things can be very risky. We have all suffered because of procrastination, missed deadlines, had to stay up all night finishing up something which should have been done a long time ago, working on the weekends etc.
While the reasons why we procrastinate are deep-rooted in our psychology, we generally tend to procrastinate more with stuff which seems daunting and requires effort and decision making.
One such area is investing.
Most people understand the importance of investment and know that without investment they are taking some huge risks regarding their future, however, they still tend to delay their investment decisions. People think they have enough time and it won't make a huge impact if they start investing later. What one needs to understand is that, they are forgetting the “magic of compounding” and are foregoing their returns by not starting earlier.
The “magic of compounding” is the simple function of money, which explains that not only do you work for money, but your money also works for you.
While one may argue that he or she will invest a higher amount during the later years when they can save more and thus invest more, the growth in corpus will still be different because of compounding. Let us look at the case of Amit and Rohan.
Both Amit and Rohan are of 25 years of age and want to retire at 60. While Amit starts preparing for his retirement by starting at 25 with an amount of Rs 5000 per month, Rohan starts at 35 with Rs 10,000 per month. Both of them invest in funds which deliver a 12% CAGR over long term.
At 60, Amit's portfolio is worth Rs 3.25 crore and Rohan's portfolio is worth Rs 1.90 crore. Even though in a total of 35 years of his investment, Amit invested a total of Rs 21 lakhs and Rohan in total of 25 years invested Rs 30 lakhs, Amit's return is higher because he started earlier and his investment was compounded for 10 more years than Rohan's.
The power of compounding is clear with the above example and it shows that even if we convince ourselves that we will be able to cover up for the time lost by investing more, growth in your corpus will still be lower if you start late.
It is important to remember that difference in corpus amounts will be even higher if one makes high investments since the beginning or invests in portfolio with higher returns.
While we have assumed the return in Amit's and Rohan's case was at 12%, the difference in amounts would have been even higher at a higher return, say 15%. If Amit and Rohan invest at 15%, while Amit's corpus would have grown to Rs 7.43 crore, Rohan's investment would have grown to only Rs 3.28 crore.
One can come up with multiple reasons to not start investing immediately, like you don't save enough or you don't know how to begin with it or you need the money for emergencies, etc etc. One just needs to go to the simple motto we've been taught since childhood, where there is a will there is a way.
Just like at the beginning with everything else, the first step is the hardest and everything works up naturally after that. Even with investing, setting your goal and deciding where to investment might seem daunting at first, but once you take the step and set up a SIP, it all aligns up automatically and there is not much you have to do after that.
Also, if you are thinking, I am already too late, just remember, you are never too late and it's better late than never. You can always figure out a way, especially with the help of a good advisor, who can guide you through with your investments.