Why Time is Money: The Cost of Delaying Investments
By Akhil Chugh
Date November 3, 2024
Putting off investment decisions can be a costly mistake. Often, thoughts like “I’m too young to invest” or “I’ll wait for the market to stabilize” lead to regret over missed opportunities. Delaying investments might feel minor at first, but it can have a huge impact on financial goals later on.
Starting your investment journey early gives you a powerful advantage, especially when planning for the future. For example, if you begin investing regularly now, you’ll be more prepared to support your child’s dreams and aspirations. Investing sooner maximizes the growth of your savings through returns, positioning you to fulfill those goals more easily.
Consider some essential questions: What will your child’s education cost? How much can you set aside each month, and for how many years? The earlier you start, the better. Thanks to the magic of compounding, even a small amount invested over a long period can grow into a significant sum.
Every year you delay investing means more “lost” money, often more than we realize. As shown in the example below, a five-year delay in starting a Systematic Investment Plan (SIP) can reduce your total corpus by almost half.
The cost of delaying investments is significant—just one year can make a huge impact. The best time to start investing for your long-term goals is “Now”.
Real Cost of delayed investments:
1. Lost Opportunity for Compound Growth:
One of the most significant consequences of delayed investments is the missed opportunity for compound growth. The longer you delay investing, the less time your money has to benefit from compounding, where your earnings generate returns themselves. Starting early allows compounding to work in your favor and potentially lead to substantial wealth accumulation over time.
Let’s look at the illustration to understand it better.
Considering the 12% CAGR returns, at the retirement age of 60 years, an investor who started his SIP of Rs 10,000 at the age of 25 years will be able to accumulate Rs 6.5 crores while another investor who started his SIP of the same amount 10 years later will only be able to accumulate Rs 1.9 crores.
This is the magic of compounding. In the investment world, time is your biggest friend. Time creates money. The earlier you start, the easier it is!
2. Comparatively higher investments:
Postponing investment decisions often results in increased financial pressure later on. To achieve the same financial goals, individuals who delay investing may need to contribute larger sums in a shorter period, leading to potential strain on their budget and lifestyle.
Let’s understand it with the help of an example. If an investor’s retirement goal is to accumulate Rs 18 crore to lead a comfortable retirement life then he has to invest Rs 50,000 per month to reach his desired corpus in 30 years. To earn the same amount in 20 years, an investor has to invest a monthly SIP of Rs 1,80,000!
Assuming CAGR of 12% in equity mutual funds investments.
3. Increased Risk Exposure:
With time on your side, you can afford to take a more balanced and less risky approach to investments. Delaying may force individuals to adopt riskier investment strategies to catch up, potentially exposing them to higher market volatility and the associated risks.
4. Missed Tax Benefits:
Various investment options offer tax advantages, such as ELSS. Delaying investments means missing out on potential tax benefits that could have helped optimize your overall financial strategy.
Key Takeaways from Net Brokers:
- Initiate your wealth-building journey early for enhanced earnings. Grasp the fundamental investing principle: prioritizing “time in the market” over “timing the market.” Delaying your start limits the time available for your investments to compound, potentially hindering wealth creation.
- Postponing investment decisions can be expensive. If uncertainty lingers, refrain from lump sum commitments and opt for equity mutual funds through monthly Systematic Investment Plans (SIPs). SIPs facilitate cost averaging, safeguarding against missed opportunities during favorable market conditions.
- The secret to being Wealthy is not always making big decisions but also making small decisions like not delaying your SIP and starting right now.
- Net Brokers emphasize the superiority of investing over holding funds in savings accounts. Relying on savings account returns to outpace widespread inflation is impractical. Instead, consider investing in instruments like mutual funds aligned with your risk profile and financial objectives, offering a higher likelihood of beating inflation.
Initiating investments early holds paramount importance for establishing substantial wealth in the long run. The consequences of delaying this crucial step can impede progress toward your wealth and financial objectives over an extended period.
Maintain discipline, stay focused, and commit to long-term investments to optimize your financial growth.
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Happy investing.