Tuesday, January 16, 2007

Advantage of Starting Early

I spent an hour working in calculating the future values of my investments and worked on MS Excel for that. I found out the "Power of Compounding" and the benefit of "Starting Early".

If I started at age 20 and invested Rs 2000 every month (Rs 24000 annually), my corpus at age 55 would have amounted to Rs 65 lacs. With similar amount and rate of return, if I started at 40, the corpus would be a miserly Rs 7.62 lacs. I invest less by Rs 4.80 lacs and the corpus difference is Rs 57.42 lacs (1196%)!

To match the returns I would have to invest more. How much? Instead of Rs 24000 every year, I will have to invest Rs 205000!! Rs 1.80 lacs more!

Confounded? Want to see the calculations. Download it here You can toggle around with the age, rate of return, retirement age and the amount to be invested. The parts highlighted by blue color are formulas and should not be changed. As you can see, it is nothing of a rocket science. Simple functions on Excel help you in this analysis.

Any questions, Ask!
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