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March 11, 2024

# Cost of Delay Explained

There is a widespread notion amongst investors that the reward will be higher if you invest at the right time. Now, the question arises: what is the right time to start investing? Some might feel it is too early, some might feel it is too late, but the answer to this most asked question is the right time to start investing is NOW, i.e. the moment you decide to invest.

At the outset, let us first differentiate between saving and investing. Consider two siblings Ram and Lakhan.

Ram, as a child, is passionate about filling his piggy bank, so he puts all his pocket money in it. Here, what Ram is doing is Saving.

On the other hand, Lakhan gives all his pocket money to his mom, who puts that money in a mutual fund on his behalf, where the savings will multiply with time. Here, what Lakhan is doing with his mother’s help is Investing.

When we compare here, Lakhan will get a larger corpus than Ram after 15 years, as he will benefit from compounding! It is like your money is earning money for you!

The earlier you start and stay invested, the more time your money will get to grow and compound. When an investment gets delayed, investors see a significant impact on their investment. This is because the delay caused takes away the time available for compounding. This eventually creates a shortfall when it comes to meeting financial goals like retirement, a child’s education, marriage, etc.

For better understanding, let us consider the example of two friends – Raju and Farhan, who want to create their retirement corpus. We assume the retirement age is 60, and both invest Rs. 2,000 a month at a return of 12%. Raju started early when he was 25, and Farhan started when he was 30.

Table 1

Even though both have earned the same rate of returns per annum on their investment, Raju, who started investing early, has a considerably higher corpus at retirement.

To understand the cost of delay for Farhan, let us consider that Raju stops his monthly investment at age 55, i.e., a 30-year period, same as Farhan and let the accumulated amount compound till he retires at 60.

Table 2: Hypothetical Scenario

Given that both invested the same amount, but because Farhan started five years later, he lost out on returns of Rs. 53,82,000. Shocking, isn’t it? Therefore, starting the investment journey early is a boon if you want to build a considerable corpus for your financial goals.

Akin to the hare and tortoise story, slow and steady investments that start early will help you achieve your financial goals comfortably. In a nutshell, be mindful of these few things while investing:

1. Start today – Even if your investment amount is small, today is the best day to start.
1. Invest regularly – Make regular investments through SIP or lumpsum as and when you have money. Stay invested through market volatility, keeping your financial goal in mind. Invest with discipline, and most importantly, be patient to see the wave of compounding around your investment.

By now, we know that delaying investments can impose a huge opportunity cost. Timing the markets is a tempting proposition. Still, over the years, multiple research reports have shown that the costs incurred from waiting for the ideal moment to invest generally outweigh the potential benefits of perfectly timed investments. Systematically investing over a period, in the long run, is a proven mantra for wealth creation. Always prioritize initiating investments at the earliest opportunity available.

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