A date with investment

This post is about a story of a person dating with Investment. So, from this post you are going to know deeply about the person's dating partner - investment. Let us have a quick intro about investment. Investment merely does nothing but earns money. Investment hates working hard for money instead knew how to make money work hard.

On the other side the person is a hard-working guy to earn money who was in the mindset that investments are for those who are at the age of their 40's and why should I invest at my 20's, rather I would enjoy my life now and do these investment stuffs at the later stages of my life. If you can relate you with this guy, let us understand about the importance of investment at the early stages of your life and more over what you will be missing out if you dive into the pool of investment very late. Imagine you are married (still a dream for many 90's kid - by the way we are not kids anymore). Think of the expenses that you have to cover. Let me help you - expenses like your children's education, EMI's for your personal, home and car loans, your parent’s medical expenses etc., your responsibilities are way high and at that time investment will merely a dream, or if possible, you will rarely save a little and invest. But in your 20's you don't have much responsibilities such that you can invest as much as possible and enjoy the ripen fruit of investment at the later stages of your life.

Many of you would have heard about "Compounding", here I will explain you its prime importance when it comes to investment. Let us first understand the concept of compounding. Compounding is the concept of growth whereas it is not only the initial investments that keeps growing but also the earnings from the investment that gets accumulated over time gets to grow as well. For example, consider that you are investing 1 Lakh rupees and your investment grows at a rate of 10% per annum. So, after 2 years, how much your investment would have grown? principal amount of 1,00,000 + 10% per year (for 2 years - 20,000 as earnings) = 1,20,000 in total? Is it so? If you have calculated like this then you are likely among the most of the people out there who are not aware of compounding.

You need to understand that it is not only your investment but also the earnings that gets accumulated tends to grow as well. So, at the end of 1st year, it is 1,10,000 that grows at a rate of 10% and at the end of 2nd year it is 1,21,000 and so on.

Now with the help of the chart below, let us understand the power of compounding and how it will give you a great advantage if you start your investments early.

Consider there are two friends A and B of same age. Person A realizes the need for investment at the early stages of life so that A started the investments at the age of 25 and managed to invest 2 Lakh rupees. Whereas Person B at the same time was in the mindset that investments are only for elderly people, but later on realized its importance and invested double the amount as A (4 Lakh rupees) at the age of 35. Both of their investments are giving the average return of 10% per annum. At the age of 55, person A's investment had grown into 34 Lakh 96 thousand whereas person B's investment had only grown into 26 Lakh 92 thousand 5 hundred. Why we see this huge difference though B invested twice as A? This is only because of the power of compounding. Person A not only invested money but also leveraged time as the factor of growth. Person A gave enough time for the investments to grow. When it comes to investments it is the time that plays a crucial role and that is why I want you people to start your investments as early as possible.

It’s time to test your understanding, in front of you there are two things - a briefcase with 10 Lakh rupees and a one-rupee coin that will get doubled every day for the next 30 days, you should pick only one thing and what will you pick? If you have chosen 10 Lakh rupees then I'm sorry you still didn't understand the power of compounding I will explain you why. If you have chosen one rupee then by every day it will be growing as the following series for the next 30 days - 1, 2, 4, 8, 16, 32, 64, 128, 256, 512, 1024, 2048, 4096, 8192, 16384, 32768, 65536, 131072, 262144, 524288, 1048576, 2097152, 4194304, 8388608, 16777216, 33554432, 67108864, 134217728, 268435456, 536870912. By the end of 30th day you will be having 53 crore 68 lakh 70 thousand 912 rupees. This is because of compounding and that is why you should always leverage its power in your life.

Many of you would have heard about Steve Jobs but how many of you knew that he was a billionaire only because of his investments in PIXAR and Disney and not because of his job at Apple. If you look at most of the rich people, they are rich only because of their investments not because of their jobs or businesses.

I hope you people have got some understanding about investments and its importance at the early stages of our lives. If you liked the post or if you want to share some suggestions or reviews kindly leave it in the comment section below and if you want to know about bitcoin investments kindly checkout the previous posts in my blog. In the next post, I will share about the types of investments that are available and its pros and cons.