"It is not how old you are, but how you are old", which matters.
Longer time horizons enhance the compounding benefits. The longer time investment tenure make all the difference. The message is clear - "Give your investment sufficient time to grow and you can gain from the power of compounding."
Example: Mr. X planned to invest Rs. 1000 per month and suppose rate of return is 12% per annum. Mr. X is 30 years old and investing for the corpus required at the time of retirement (suppose at the age of 60 years).
At the retirement Mr. X will accumulate $3,061,042
Mr. Y planned to invest at the age of 40 years and required capital is equal to Mr. X with rate of return is 12% per annum and retirement is at the age of 60 years. Investment required to accumulate capital equal to Mr. X is $3,353 per month.
Mr. Z planned to invest at the age of 50 years and required capital is equal to Mr. X with rate of return is 12% per annum and retirement is at the age of 60 years. Investment required to accumulate capital equal to Mr. X is $13,782 per months.
Many people are unaware or vaguely aware of the problems associated with retirement and the life thereafter. Some of them recognize that retirement problems exist but feel there is no way to cope with the magnitude of the financial requirements. They decide to concentrate on today and let tomorrow take care of itself.
At retirement, needs to be fulfilled :-
a. Provide a regular income during retired life.
b. Meet lump sum needs immediately on retirement and thereafter.
c. Take care of inflation.
d. Take care of medical emergencies.
"Silver in hair and Gold in pocket", this is how one should aspire to retire.
Time value of money (TVM) is the idea that money that is available at the present time is worth more than the same amount in the future, due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received.
ReplyDeleteThank you for the article. I really like your article and the way you explain it. May I know the formula or method you used in this article.
ReplyDeleteI've used formula of Compound Interest. In excel, you use Excel function "FV" or calculate by using formula "Amount*(1+rate of interest)^time.
ReplyDeleteFor more benefit of compounding, invest for long term. If you will give more time, then you will get more return.