There is No Fate But What We Make: One crore !

Friday, November 04, 2005

One crore !

One crore rupees ! Most Indians just choke thinking how much money this is. No wonder those crorepati quiz shows are so popular. Unless you inherit that sum or win a quiz show, there’s no way you can ever create that much sum – right or wrong ?
Wrong … Wrong… Wrong… each person can create that much wealth… I personally know someone who has reached the halfway mark in 5 years. He hopes to reach the one crore mark by 40. No, he is not an Amway agent or made a killing in an IPO. His technique:

- Create a clear goal and calculate the amount needed to be invested every month.
- Live below the means (so that investments can be made to meet the big future goals)
- Invest every month. Ignore the SENSEX and mainstream media.
- Maintain Asset allocation
- Minimize taxes and investment expenses

Say, you are 22 years old and just starting your career. Invest 10,000/- every month into a diversified equity fund (or your chosen bunch of stocks). Reinvest all dividends. Taking a 14% return, in 18 years when you are 40, you have 1 crore ! Go retire and tour the world! That’s the power of compound interest.

Most of us know about compound interest. But we don’t realize just how powerful it is. Back in the 16th century, a bunch of Native Americans sold the entire Manhattan land to Dutch traders for a paltry sum of 24 dollars. Most people mock the Native Americans for being so stupid. But their real stupidity is not the selling. But it is the fact that they did not invest those 24 dollars. Had they invested the amount in something that gives even a measly 8% returns, over the next 400+ years, the amount would have become multi-trillions. Enough, for their progeny to buy back the land of Manhattan, plus those of entire New York state, plus the three neighbouring states.

That’s the power of compound interest. Go figure.

7 Comments:

At Wednesday, November 09, 2005 5:59:00 AM, Anonymous Sap said...

Short & crisp, but a very effective article. For people like me who have realised the value of compound interest and investing, its perhaps a late start, but "better late than never".

 
At Monday, April 28, 2008 3:51:00 PM, Anonymous Anonymous said...

I personally know someone who has reached the halfway mark in 5 years..... Invest 10,000/- every month into a diversified equity fund (or your chosen bunch of stocks). Reinvest all dividends. Taking a 14% return, in 18 years when you are 40, you have 1 crore ! Go retire and tour the world!
I similarly have heard of people who have lost 'everything' in the stock market. Making millions too quickly is risky business, and you must weigh your options. Few things really come so easily.

 
At Wednesday, April 01, 2009 12:06:00 AM, Anonymous Anonymous said...

Yes, its very risky now to invest money. Every asset value is loosing its charm. What compounding the principal alone is not secured. I like PPF, Bank FD very much. Stock market ne to loot liya yaar

 
At Wednesday, April 01, 2009 12:52:00 AM, Anonymous Anonymous said...

Anonymous above - please look up "recency bias" on the internet.
http://en.wikipedia.org/wiki/Recency_effect

 
At Wednesday, April 01, 2009 12:53:00 AM, Anonymous Anonymous said...

Anonymous on April 28, 2008 -
"Making millions too quickly is risky business, and you must weigh your options. Few things really come so easily."
The author said 18 years for this plan. Won't call it too quickly, would you?

 
At Monday, August 31, 2009 10:42:00 PM, Anonymous Anonymous said...

i agree with the author while investing in stocks one should be prepared for the ups and downs, investment should always be drop by drop dont put all ur investments in one go....when the sensex started off till date we would have made 15% return annually had we invested at that time...even after taking the harshard mehta and other blood bath in the market...which bank will give that kinda return guys?

 
At Saturday, January 01, 2011 3:03:00 AM, Anonymous Anonymous said...

You've neglected that after 18 years when the 22 year old has a crore in investments, the allure of 1 crore will be nothing compared to today. Looking at India's inflation, in 18 years 1 crore would be like having 25 lakhs today. Hardly enough to retire and tour the world with....

 

Post a Comment

Links to this post:

Create a Link

<< Home