How to retire a crorepati
If you wish to lead a comfortable life post retirement, you need to start planning right away, says Nikhil Walavalkar “Kaun Banega Crorepati?” This question is almost instantly associated with the game show where contestants stood to win one crore rupees as prize money. Even if the show were to come back on air, and even if you did make it to the contestant’s seat it would be a tough winning the bounty. But there is a more simple and certain way to make a crore. First a bit of maths. The formula for calculating how much you can save can be expressed as A= P* (1+i)^N. Where A is the accumulated value of the savings, P is the principal or the investment, I the rate of return during the period and N is the number of years. If one invests Rs 10,000 at 15% per annum for 35 years, he would end up with Rs. 13.31 lakh. If 15% is a too optimistic scenario for you, consider 10% and the kitty stands at Rs. 2.81 lakh. Still a sizeable sum compared to the original investment, thanks to compounding over a long period of time. A look at the above two scenarios tell us that a drop in the realised rate of interest by 33% has led to a fall in accumulated kitty by more than 75%. Similarly, if there will be a variation of several lakhs in accumulated savings if there are relatively small changes in the principal amount or the term. Tweaking the numbers we realize the difference of all these three elements in the journey of wealth creation. The rate of return is an external factor over which we have no control. Not everyone can be a Warren Buffet or George Soros and make the right calls in investment over a long period of time. Most of us are subject to market and emerge as 'takers' when it comes to the rate of return on our portfolio. However, what investors forget is that in case of rest of the two variables- the term of the investment (N) and the investment amount (P), we are, more or less, in charge of them. Take the case of P. How much to save is something you have to decide. Saving for the rainy day is a virtue that helps you on your way to wealth. 'The Millionaire Next Door' – the bestseller discussing the millionaires in USA- pinpoints 'frugality' as a common thread among them. They live well below their means. Saving decides the investments and so the wealth accumulation. More one saves more the wealth accumulates, other things remaining the same. Next comes the time period (N). The accumulated wealth has a direct relationship with the tenure of the investment. Term (N) the time periods for which the interest is payable if higher, then the accumulation is also higher and hence it makes a lot of sense to start as early as possible. In other words, to ensure that you retire wealthy, you should save as much as possible and invest your savings for a longer period of time. Path towards the 'crorepati' mark becomes clearer, if you look at the adjoining table. The table provides how much you should invest each month to reach Rs 1 crore, given a tenure and an expected rate of return. At an expected rate of return of 9% with a tenure of 12 years you need to invest Rs 38,803 per month. But if you expect to earn a return of 14%, you may reach Rs 1 crore mark with an investment of Rs 901 per month for 35 years. Although the rate of return is an external factor. It is widely expected that for double digit returns in the longterm one has to look at equity. As of now fixed income instruments are attractive but interest rates will in all liklihood remain soft in future. Investing in bonds when before rates soften is a good idea. "We are still bullish on bond markets as fundamentals that drive the bond prices are strong. As crude oil prices, GDP growth and IIP data have fallen and inflation has touched multi months low leaving room for RBI to cut interest rates further" Anant Sharma, Senior Research Analyst (Mutual Fund)-SMC. Equity markets do not look very good as of now. One sign of revival could be some high profile IPOs which could revive the markets just as the Maruti IPO helped boost the markets in 2003. "It seems that 2009 won't offer much IPOs, on the back of unstable secondary market. Still market can expect some hope from the strong IPOs in pipeline like MCX, NHPC , Reliance Infratel , Coal India, BSNL etc. " says Ankita Nanda, Senior Research Analyst (IPO)-SMC [email protected] --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en -~----------~----~----~----~------~----~------~--~---
