Why do I need to invest?

Everywhere there’s the buzz of investing early, diversification, healthy portfolio ..blah blah ……. So ..why the f**k you really need to do it?

1. Let’s consider what if you chose not to invest ;)

Let’s assume that your awesome 9–5 job makes you INR 50,000 per month after those long meetings and hard work and suppose you spend Rs.30,000/-towards your cost of living which includes housing, food, transport, shopping, medical and some Netflix :P. The balance of Rs.20,000/- is your monthly surplus. For the sake of simplicity, let us just ignore the effect of personal income tax in this discussion also coz even the thought of paying tax makes me sweat.

To take the discussion forward and avoid lot’s of jargons, let us make a few simple assumptions…

1. The employer is kind enough to give you a 10% salary hike every year
2. The cost of living is likely to go up by 8% year on year
3. You are 30 years old and plan to retire at 50. This leaves you with 20 more years to earn
4. You don’t intend to work after you retire …who does lol.
5. Your expenses are fixed and don’t foresee any other expense but whom are we kidding
6. The balance cash of Rs.20,000/- per month is retained in the form of hard cash

Going by these assumptions, here is how the cash balance will look like in 20 years.

If one were to analyze these numbers, we soon realize this is a scary situation to be in. Few things are quite startling from the above calculations:

1. After 20 years of hard work, you have accumulated Rs.1.7Crs. On first glance, this looks like a worthwhile amount isn’t it? Trust me it is not.
2. Since your expenses are fixed, your lifestyle has not changed over the years, you probably even suppressed your lifelong aspirations — How about retiring to the Himalayas.
3. After you retire, assuming the expenses will continue to grow at 8%, Rs.1.7Crs is good enough to sail you through roughly for about 8 years of post-retirement life. 8th year onwards you will be in a very tight spot with literally no savings left to back you up.

What would you do after you run out of all the money in 8 years time? How do you fund your life? Is there a way to ensure that you collect a larger sum at the end of 20 years? Starting to work again would be a very tough option after 8 years of retirement.

Let’s consider another scenario where instead of keeping the cash idle, you choose to invest the cash in an investment option that grows at let’s say 12% per annum. For example — in the first year you retained Rs.240,000/- which when invested at 12% per annum for 20 years yields Rs.2,067,063/- at the end of 20th year.

With the decision to invest the surplus cash, your cash balance has increased significantly WoW (^_^). The cash balance has grown to Rs.4.26Crs from Rs.1.7Crs. This is freaking 2.4x times the regular amount which also implies you won’t have to worry for about next 19.2 (2.4X8) Years. This translates to you being in a much better situation to deal with your post-retirement life.
Now, going back to the initial question of why invest? There are a few compelling reasons for one to invest…

1. Fight Inflation — By investing one can deal better with the inevitable and ever-existing — growing cost of living — generally referred to as Inflation
2. Create Wealth — By investing one can aim to have a better corpus by the end of the defined time period. In the above example, the time period was up to retirement but it can be anything — children’s education, marriage, house purchase, retirement holidays etc
3. To meet life’s financial aspiration- Buying favourite golf clubs, Premium memberships, holidays abroad, summer home etc

The idea is to Invest early and Invest Smart and say Welcome in Advance to your old self ………..

One investment option would be investing in this writer by giving 50 Claps for future investment advice :)………………