Starting early and evolving a disciplined approach will lead to long-term financial success

“Nivesh ka sarvottam samay kal tha, ya hai keval ab.

Phir na koi samay aayegaa, jñaan bekaar ho jayega sab.”

Translation: The best time to invest has passed or has been passing by now.

No opportune time comes, knowledge notwithstanding though

The above lines help to bring out an interesting fact on why one should not procrastinate their investment decisions with an objective to generate better returns by timing the market. The best time to invest is now and one should not miss out on the opportunity in implementing the output of your narratives or your analysis. Investing is a continuously disciplined journey towards creating wealth.

Financial goals are specific objectives individuals set for securing their future. These goals can comprise creation of a corpus for retirement, owning a house, funding child’s education or marriage, planning for next adventure or travel experience. The timeline and amount required to achieve each of the above goal involves strategic planning and disciplined investing.

The cost of delay refers to the potential negative impact that can have on your investments due to procrastination of the investment journey. When it comes to investing, time plays a crucial role due to the power of compounding. Compounding allows the returns generated on your principal amount invested and also to earn returns on the appreciation of principal amount. The longer your money is invested, the more it can multiply. Let’s consider an example of cost of delaying can have on our financial planning and wealth creating journey.

Particulars Mr. A Mr. B Monthly SIP Amount 5000 25000 Period of Investment 25 years 10 years Assumed Rate of Return 12% 12% Future Value ofInvestment 85,11,033 56,00,897 Amount Invested 15,00,000 30,00,000

Mr. A starts investing early and consistently contributes towards his retirement corpus through a systematic investment plan (SIP). Mr. B delays starting his investments and begins contributing just 10 years before his retirement.

Mr. A starts his investment journey when he is 25 years away from his retirement with an SIP amount of INR 5,000, which is just one fifth of Mr. B’s SIP amount. On the other hand Mr, B starts his SIP investment just 10 years before retirement with 5 times Mr. A’s SIP amount. The total invested capital of Mr. B aggregates to INR 30 lakh, which is double of Mr. A’s invested amount of INR 15 lakh. Even if both individuals invest in a fund generating 12% compounded annual returns, Mr. A, who started earlier, potentially have more than 85 lakhs as his retirement corpus. Whereas Mr. B despite making large SIPs towards retirement goal end up having a retirement kitty of nearly INR 56 lakh. The difference of INR 29 lakh is due to amount of time spent in the market by Mr. A without timing the market. Mr. A managed to generate higher investment amount at the end of the investment period despite investing half the amount invested by Mr. B. because Mr. A’s money had more time to compound.

The cost of delay is too evident in the missed opportunity for the delayed investor in this case Mr. B to be benefited from compounding. Over time, the impact can be significant, and delaying investments may require much larger contributions later to catch up.

It is pertinent to understand that, when it comes to investing, the focus is often on returns and amount of investment. While returns and amount are undoubtedly critical aspects, it is equally important to recognize the pivotal role that time plays in creating the value of investments. While computing investment’s future value expressed as: FV=PV×(1+r) n , we understand that the term ‘n’ represented by number of compounding period is the exponent in the compound interest factor represented by (1+r) n.

Even though your initial investment value (expressed by PV in the formula) has a multiplying effect but “n” has relatively higher contribution to the compounding process, thus leading to significant wealth creation. However, investors may be tempted to focus only on historical performance of funds or investment avenues with historically high returns, without giving due consideration to the length of time those returns were generated by an investment.

Procrastination results in a higher cost, potentially affecting the achievement of financial objectives.

Starting early and staying disciplined in your financial approach can mitigate this cost and contribute to long-term financial success.

By understanding these dynamics, investors should make more informed decisions that align with their long-term financial goals and reap maximum with whatever insights they have on investment outlook.

We all know the moral of the ‘Hare and tortoise’ story’ that “Slow and steady wins the race” but in the capital market, we can say the moral is ‘time and steady wins the race.’

(The writer is senior Vice-president, SBI Funds Management Ltd; Content translation by Ganesh A. Kamath, Chief Manager (Products) at SBI Funds Management Limited)