Long term investing is key to accumulating wealth. A recently released report explains this when it asserts that Indian equities have outperformed all other asset classes over the long run.
While equities delivered 16.7 percent annualised returns in the past 20 years as onJune 30, 2023, gold gave a return of 12.1 percent, real estate 9 percent and debt 7.2 percent, shows Wealth Conversations July 2023 report by FundsIndia.
It further underlines that even if someone had invested right before a market crash, the returns would have been decent over a long time-frame.
For instance, if someone invested right before 2010 European Debt crisis, the annualised returns till June 2023 would have been 11 percent. Likewise, if someone had invested right before the 2015 global market selloff, the annualised returns would have been 11 percent, and the investor who invested right before Covid crash in 2020 would have earned annualised 15 percent returns.
Meeting financial goals via SIPs
The report gives out a timeline to reach financial goals by assuming an annualised rate of return as 12 percent.
For instance, if someone invests ₹10,000 every month and raises the systematic investment plan (SIP) amount by 10 percent every year, then it takes 15 years and 10 months to accumulate ₹one crore.
At the same time, if the monthly SIP amount is ₹30,000 then by increasing the SIP amount with 10 percent, it would take exactly 10 years to accumulate ₹one crore.
Also, if the monthly SIP amount is ₹50,000 and the investor raises the SIP amount by 10 percent every year, it would take 7 years and eight months to accumulate ₹one crore.
Magic of compounding
The systematic investment brings to focus the magic of compounding. The report explains what it calls the 8-4-3 rule. Let us suppose you invest ₹50,000 every month and the investment grows at 12 percent annualised rate. Then it would take eight long years for the investor to accumulate the first ₹80 lakh.
But it would only take half the time (i.e., four years) for the next ₹80 lakh. And it only takes 3 years for the third ₹80 lakh. And by the time you reach 20th year, you add ₹80 lakh almost every year.
Further, if someone invests ₹30,000 per month and investment grows at the rate of 12 percent per annum, it would take eight long years to reach the first ₹50 lakh. And it would then take only half the time (i.e., 4 years) for the second ₹50 lakh, and only 3 years for the third ₹50 lakh.
