Case Study – How a 10-Year delay can Destroy your ‘Get-Rich’ Plan?

It’s not easy to become rich. And while making such a statement, I am ready to ignore the definition of ‘Rich’ too. If you don’t consider yourself to be rich, then you already know how tough it is to become one.
And just to verify the concept of ‘Being-Rich-Is-Difficult’, go out and ask someone you consider to be rich. I am sure that they will also tell you that it is not easy to become rich. And it’s even tougher to stay rich.
But no matter what anybody else tells you, my view is that the biggest tool you have in your journey to become rich is Time. If you have time on your side, even small amounts can become eye-popping(ly) huge – as you will see in this case study.
So lets get straight into a some numbers….


There are two friends named Vineet and Raunak. Both are of same age (25) and earn decent amounts of money, which theoretically gives them the option of investing a fixed amount every year (after expenses).
Scenario 1:
Vineet is frugal and believes in saving. He knows that he does not have a rich inheritance and hence, needs to save for himself and his family. Vineet starts investing Rs 1 lac every year. But he does this only for 10 years between the age of 25 and 35, i.e. he saves a lac rupees every year for 10 years and then stops.
His total contribution is Rs 10 lacs (between age 25 and 35).
Raunak on the other hand thinks that since he is quite young, he can postpone saving/investing for future. He thinks that if he does not save starting from the age 25, and does it after a few years…even then he will be able to become very rich.
So in this example, Raunak starts investing the same amount as Vineet (Rs 1 lac) at the age of 35 and continues doing it upto the age of 60.
Raunak’s total contribution is Rs 25 lacs (between age 35 and 60).
Now comes the day of reckoning. Both have reached the age of 60.
What’s your guess? Who has more money at age 60?
It might sound surprising, but the answer is Vineet. Having contributed just Rs 10 lacs, Vineet now owns a huge corpus of Rs 6.65 Crores!!
And what about Raunak? The answer is that he becomes rich too. But having contributed Rs 25 lacs, he has accumulated a much smaller corpus of Rs 2.36 Crores. And that is despite having invested for 15 more years than Vineet.
Scenario 1: Vineet (Rs 6.65 Crores) – Raunak (Rs 2.36 Crores)
Here is the calculation sheet for your reference. The return assumption in this and further scenarios is 14% per annum.

Delay in Investing Scenario 1
Lets go on and evaluate a few more scenarios…
Scenario 2:
Vineet is still frugal and still believes in saving. Like the first scenario, Vineet here also invests Rs 1 lac every year from the 25 to age 35. But Raunak has changed. Though Raunak still does not save anything between the age 25 and 35, he now does realize the power of compounding. So he decides to invest the double amount (than that of Vineet) between the age 35 and 60.
That is, Raunak invests Rs 2 lacs every year for 25 years.
So in this particular case…
Vineet’s total contribution is Rs 10 lacs (between age 25 and 35).
Raunak’s total contribution is Rs 50 lacs (between age 35 and 60).
Once again, the day of reckoning arrives and both reach the age of 60. What’s your guess now? Who has more money at 60?
Answer once again, and surprisingly enough is Vineet!
Vineet still attains a corpus of Rs 6.65 Crores as in the first scenario. But Raunak after doubling his investments is still able to reach Rs 4.73 Crores. Now you see? This is the power of investing early. And so big can be the difference when you delay your investments. 
Here is the calculation sheet for your reference.
Delay in Investing Scenario 2

Scenario 2: Vineet (Rs 6.65 Crores) – Raunak (Rs 4.73 Crores)

Lets move on to other scenarios now…
Scenario 3:
Now lets make this analysis more realistic. As we progress in life, our incomes generally rise. And so do our expenses. So shouldn’t our investments and savings also rise with time?
Suppose you start your career earning Rs 20,000 a month. And you also start investing Rs 5000 a month at that time. After a few years, your salary is almost Rs 70,000. And if you are still investing just Rs 5000, then you are fooling yourself. Investing is done for one’s own future. And it’s one’s own responsibility to maximize it as soon as possible.
So lets get back to this new scenario.
Here Vineet starts by investing Rs 1 lac at the age of 25. But over the next 10 years, he increases his yearly investment by a small 5%. So over a period of 10 years (between 25 and 35), he invests Rs 12.58 lacs.
On the other hand, Raunak starts late at 35 with Rs 1 lac a year. But he also starts earning more and more every year and is able to increase his yearly investments by 10% (double that of Vineet’s 5%). His total contribution over a period of 25 years (between 35 and 60) is Rs 98.3 lacs.
Day of reckoning…
I wont even ask you this time. 🙂
Once again, Vineet has more money when he retires at 60!! Vineet manages Rs 7.94 Crores in comparison to Rs 5.08 Crores accumulated by Raunak.
Isn’t this amazing? Starting as early as possible and just investing for few years and then just waiting. And after a few decades, you have more money than someone who started late, invested many times more than what you invested.
This is indeed the 8thWonder of the World. We need to give standing ovation to the concept of Compounding. 🙂
Here is the sheet for 3rdscenario’s calculation.
Delay in Investing Scenario 3
Scenario 3: Vineet (Rs 7.94 Crores) – Raunak (Rs 5.08 Crores)
So lets move on to the 4thscenario.
Scenario 4:
There is only one change in this scenario over the 3rd one. I am making this scenario more realistic. And the change I am making in this one is based on the question that why should Vineet stop investing at age of 35? Shouldn’t he continue further and upto the age of 60?
So here is it….Vineet does not stop investing at 35. He continues investing upto 60 and increasing his contribution by 5% every year. Compared to him, Raunak increases his contribution 10% every year.
To cut the long story short, after 60 years, Vineet has Rs 13.3 Crores and Raunak has Rs 5.08 Crores.
I have nothing more to say for this scenario. 🙂
Scenario 4: Vineet (Rs 13.30 Crores) – Raunak (Rs 5.08 Crores)
Here is the sheet for your reference.
Delay in Investing Scenario 4
I can go on and on with more scenarios but that would only help the case of investing early, which we have already proven in previous four scenarios. For example, we can reduce the return assumption from 14% to smaller numbers, etc. But the point which I am trying to make through this post, is, that there are some really amazing benefits of starting early when it comes to investing.
You can start later and still get to the same final corpus. But that would require you to earn much higher rates of returns…and that too for many years – which is neither easy nor practical.
And just to illustrate this, here is the 5th scenario 🙂
Scenario 5:
Vineet invests Rs 1 Lac for 10 years (from 25 to 35)
Vineet’s Return assumption = 14%
Corpus at age 60 = Rs 6.6 Crores
On the other hand,
Raunak invests Rs 1 Lac for 25 years (from 35 to 60)
Raunak’s Return assumption = 20%
Corpus at age 60 = Rs 6.8 Crores
Scenario 5: Vineet (Rs 6.6 Crores @ 14%) – Raunak (Rs 6.8 Crores @ 20%)
Both have accumulated almost same corpus after reaching 60. And Raunak has started 10 years late and invested for 15 more years. But do you think 20% per year return can be attained? I don’t think so. It’s almost impossible. It is not a reasonable expectation to have.
For your reference, here is the calculation sheet of Scenario 5
Delay in Investing Scenario 5
All these five scenarios show that if you start early, you don’t need to earn eye-popping rates of returns to accumulate big sums of money. All you need is time. And when you start early, you have a hell lot of time. The earlier you start, longer does your money have the time to grow.
And to end this analysis, I leave you with a very small 4-Step guide to help you become amazingly rich:

1) Start early

If possible, invest from the day you start earning your first salary. You would be surprised at how much these small amounts can increase when invested for long periods of time.

2) Treat Investments as Monthly Bills and be regular with them.

Unless and until you have the discipline to invest regularly, you can forget about accumulating a large corpus by the time your retire. You should invest first and then use remaining money for expenses.

3) Do whatever it takes to maximize the amount you can invest

First thing is that no matter what happens, you need to invest regularly. And in case you have surplus money, make it a point to invest as much of it as possible.

4) Be patient. And in long term, you will need loads of it

One of the biggest mistakes people make is that they withdraw/touch the money they start accumulating. The biggest problem of compounding, or I should say the power (not available to many) is that it works best, when you do not disturb it. In initial few years, the results will seem extremely slow. And you will start losing your faith on it. But hold on. In a few more years, you will realize the power of compounding.
This post clearly indicates that there is price to be paid for any delay in investing. And mind you, this price is not small. You can delay and still become rich.  But remember that the biggest side effect of procrastination (when investing) is that you will not become as rich as you might have become, had you not procrastinated.

Investing Later Now Procrastination

So irrespective of your age, do not wait any further. Go on…Now is the time to begin investing for long-term. And remember that the cost of delaying your investment is enormous. Even one year makes a huge difference.

Advertisements

Written by Dev Ashish

Founder - Stable Investor Investing | Personal Finance | Financial Planning | Common Sense

57 comments

  1. My request to you is that do not keep switching funds just because it is not the best one. You must have a reasonable expectation of returns in mind. For example – I think a return of 15% is good. But if my fund is giving me 16% and there are others which give 19%, I will not switch my funds in a hurry.
    So stick to your funds but if they are underperforming the averages too, then think of switching.

  2. The 14% return assumption is used for calculations and is the average % which I expect markets to provide in long term. There is no known product in India which can give assured and fixed 14% returns. Its an average which I am looking forward to when investing for long term.

  3. Hi,

    Thanks for a crisp and clear post. Dispels a lot of notions without much ado!

    Alas! for me i am in a situation worse than that of Raunak and what Nanda had expressed. Saving and investment were an anathema to me – atleast till recently. And, by the time i realised i reached 50. Pretty late in the day to make up for lost time. I now realise that however hard i try may not be able to make up the corpus i may require. Nonetheless the effort is on with a substantial amount every month in SIP’s.

    I am writing this to express my predicament and seek inputs what i can do to improve my situation.

    Thanks

    1. At 50, my guess is that you have another 10 earning years (correct me if wrong) left. So atleast ideally, the equity component cannot be very large now or even going forward. But it actually depends on your current networth, expenses and a lot of other factors. I can only share my views if I have more information about yoru situation. If you want to discuss this, please drop me a mail at dev@stableinvestor.com

  4. Hi Dev

    I follow your posts and I am trying to be a fellow stable investor. While I am in the bracket of save more and remain protected later, I want to know if you have a post on how to manage corpus (say 5 cr) once retired?

    With scenarios like – monthly income from age of retirement to death (say one retires at 50 and lives until 80, or 60 to 80 or 45 to 80 even). How will management of the corpus vary over time?

    Please direct me to that post or let me know if you want to write like that something later.

Leave a Reply