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Why you should start investing as early as today – Power Of Compounding explained!

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There is a saying regarding trees which goes like, “The best time to plant a tree was 20 years ago, the second best time is today”. The same can be applied to investing too.

People do realize the importance of investments but it is not a priority for them in the early stages of their career. Paying bills, buying new gadgets, weekend parties take away most of the paycheck and often we do not have or have very little left at the end of the month. We delay making investments as we think that we can always make up for the lost time once we start to earn more and thereby investing a higher amount. However, making up for lost years in investment is not easy, even when you invest a higher amount.

Let us see an example:

Suppose, Mr. Ramesh is 30 years old and he wants a corpus of ₹ 1 Crore at the age of 60 year. If he starts investing right now, then he would have to save ₹ 1,796 per month (assuming a 15% annual return). However, if he delays the investment till the age of 50 yrs, then for the same amount of 1 Cr, he will have to save ₹ 38,466 per month which is 21.4 times more than the amount required at age 30.

Here is a graphical representation of the monthly investment required to have corpus of 1 Crore at the age of 60 yrs.

The Key to Power of Compounding – Patience

As we can see, power of compounding is a fascinating concept. Another very important feature of power of compounding which every investor must understand is that it is very boring. Yes, you read it right, it is boring, and let us see why it is so.

Take the scenario in our first example where you were investing Rs. 1,796 per month for 30 years to reach a corpus of 1 crore.

Your corpus will reach to 1 lakh in 3.66 yrs. To reach Rs. 10 lakh, it will take 14.5 years. In next 6 years, that is in 20.4 yrs the corpus will reach 25 lakhs and for corpus to become 50 lakhs it will take less than 5 years (at 25.1 yrs) and in another less than 5 years, i.e. at 30 yrs the corpus will cross Rs. 1 crore.

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