When to invest in Stock Market?

Stock market consists of libraries of stories ranging from, a man getting from rags to riches and riches to rags. The main problem with investors is not that, they want to become rich in the stock market but rather they want to become rich quickly. Everyone likes to get rich quickly in the stock market but the markets are not designed in that way. The market will test our patience to its core before rewarding with fruitful money. The main ingredient to become rich in the stock market is to start early.

Power of being early in the game

Tina and Bina are two best friends from their school days. Both have started their career at age of 25 by earning a modest salary of Rs 20000 per month. Tina being wise, decides to invest Rs 6000 every month (yearly investments of Rs 72000) in the stock market. She continues for just 10 years and then she stops investing her money. She expects a modest return of 15% every year to her portfolio.

 Bina at the age of 35, now decided to invest in the stock market. She also decides to invest Rs 6000 every month regularly. Bina invests her money for the next 25 years and she still continues to invest regularly.

Whom do you think will be more wealth in long run?

It would be Tina. Yes, you read it right, the girl who invested for just 10 years will be wealthier and even multiple times wealthy than the girl who has invested for 25 years and still investing.

But the most important fact is that Bina would never in her lifetime (even if she invests for additional 20 years) would catch up with the wealth created by Tina. But why so?

That’s the power of being early in the game. Compounding of our money shows its beauty when we start early.

TINA

Age Investment years Yearly SIP Amount Cumulative SIP amount Year-end SIP amount
25 1 72000 72000 82800
26 2 72000 154800 178020
27 3 72000 250020 287523
28 4 72000 359523 413451
29 5 72000 485451 558269
30 6 72000 630269 724810
31 7 72000 796810 916331
32 8 72000 988331 1136581
33 9 72000 1208581 1389868
34 10 72000 1461868 1681148

From the table we get that, Tina has generated a wealth of Rs 16.8 lakhs by investing Rs 7.2 lakhs in 10 years.

Now we compare the wealth created by both Tina and Bina and understand the real power of compounding over a long run from the below table.

Age TINA BINA
Amount Invested Wealth created Amount Invested Wealth Created
25          72,000          82,800                 –                   –  
26          72,000       1,78,020                 –                   –  
27          72,000       2,87,523                 –                   –  
28          72,000       4,13,451                 –                   –  
29          72,000       5,58,269                 –                   –  
30          72,000       7,24,810                 –                   –  
31          72,000       9,16,331                 –                   –  
32          72,000     11,36,581                 –                   –  
33          72,000     13,89,868                 –                   –  
34          72,000     16,81,148                 –                   –  
35                 –       20,16,120          72,000          82,800
36                 –       24,01,338          72,000       1,78,020
37                 –       28,44,339          72,000       2,87,523
38                 –       33,53,790          72,000       4,13,451
39                 –       39,39,658          72,000       5,58,269
40                 –       46,13,407          72,000       7,24,810
41                 –       53,88,218          72,000       9,16,331
42                 –       62,79,250          72,000     11,36,581
43                 –       73,03,938          72,000     13,89,868
44                 –       84,82,329          72,000     16,81,148
45                 –       98,37,478          72,000     20,16,120
46                 –    1,13,95,900          72,000     24,01,338
47                 –    1,31,88,085          72,000     28,44,339
48                 –    1,52,49,097          72,000     33,53,790
49                 –    1,76,19,262          72,000     39,39,658
50                 –    2,03,44,951          72,000     46,13,407
51                 –    2,34,79,494          72,000     53,88,218
52                 –    2,70,84,218          72,000     62,79,250
53                 –    3,12,29,651          72,000     73,03,938
54                 –    3,59,96,898          72,000     84,82,329
55                 –    4,14,79,233          72,000     98,37,478
56                 –    4,77,83,918          72,000  1,13,95,900
57                 –    5,50,34,305          72,000  1,31,88,085
58                 –    6,33,72,251          72,000  1,52,49,097
59                 –    7,29,60,889          72,000  1,76,19,262
60                 –    8,39,87,822          72,000  2,03,44,951

 

The above table simply tells us that, the girl who invested only Rs 7.2 lakhs has created a wealth of 8.3 crores at the age of 60. Another girl who invested Rs 18 lakhs and still investing has created a wealth of Rs 2 crores only. The secret for the huge differences is that, the first girl stated early.

However hard Bina tries, she would not be able to match up with the wealth of Tina, even if she continues to invest for many years to come.

Wealth Creation Chart

But what if I didn’t start in my early years, what is the right time to start my investments?

The present moment is the best time to start our investments. Don’t bother about the present market environment. The big news which is ruling the markets today (trade war, rupee depreciation, political uncertainty etc.) will ultimately fade in just a few years. If you don’t believe me, just try to remember what was the hot news of the day exactly one or two years before, the news must have died long ago. We should not be like Bina and try to act like Tina by being early in the game.

When asked Warren Buffet, what was his greatest regret?

Now we can understand why Warren Buffet is enormously wealthy. Power of compounding worked in his favor by being early in the game.