There are essentially three key ingredients for building wealth - Savings rate, Time & Returns
Out of these, most of us spend the maximum time & effort on improving the third ingredient – RETURNS
But, there is however a small underrated problem here..
#FIThreads
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The returns are NOT completely under our control!
Look at the equity returns in the past four decades…
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Let us check the debt returns for the past four decades…
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To understand this better, let us look at the returns of a simple Equity-Debt portfolio at different asset allocations
The same portfolio has led to completely different returns at different periods...
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How high our portfolio returns will turn out has a component of ‘luck’. If we end up on the wrong side of luck, we might fall short of our goals.
Therefore, it is always better to build some room for error with the help of ingredients under our control - SAVINGS RATE & TIME!
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For example, let us increase our monthly savings by just Rs.1,000… and add to it the power of a long 30 years time frame…
Any guess what a decent 10% CAGR can do to this?
A whopping Rs. 23 lakhs!
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By simply investing an extra Rs.1,000 every month and adding the power of time (30 years), we can add Rs. 12 to Rs 23 lakhs to our final portfolio value at a reasonable return expectation of 7-10%
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What if we increase the extra savings of Rs.1,000 annually by 5%?
By simply investing an extra Rs.1,000 every month and increasing it by 5% every year for 30 years, we end up adding a whopping Rs. 21 to Rs 36 lakhs to our portfolio value (@ reasonable 7-10% returns).
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The Simple Takeaway:
Even a small increase in our savings combined with the power of time can significantly add up to our overall long term wealth.
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Check out our detailed blog to know more on this.. #Investing #Savings
fundsindia.com/blog/mf-resear…
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