Compounded Growth Example Benefit of Starting Early

Benefit of Starting Early – An Illustration

The tenure of investment has the biggest impact on wealth building. Therefore, it is most important that the investments are started at the earliest age possible in one’s life. Look at the following illustration which compares investments made over time by 2 batch mates who graduated from college together and started their careers around the same time:

Person 'A'

  • Starts investing Rs. 25,000 yearly within the first year of graduation.
  • Invests for 10 years and then stops

Person 'B'

  • Does not invest anything for 1st 5 years after graduation
  • Thereafter invests Rs. 30,000 yearly (Higher than his friend ‘A’) for next 30 years

Assuming both of them earned the same return of 12% p.a. on their investment, who do you think accumulated a higher retirement corpus at age 60?

See below for the answer…

Compounded Growth Illustration

Age Yearly Investment
Person ‘A’
Accumulated Corpus
Person ‘A’
Yearly Investment
Person ‘B’
Accumulated Corpus
Person ‘B’
25 ₹25,000 ₹28,000
26 ₹25,000 ₹59,360
27 ₹25,000 ₹94,483
28 ₹25,000 ₹133,821
29 ₹25,000 ₹177,880
30 ₹25,000 ₹227,225
31 ₹25,000 ₹282,492 ₹30,000 ₹33,600
32 ₹25,000 ₹344,391 ₹30,000 ₹71,232
33 ₹25,000 ₹413,718 ₹30,000 ₹113,380
34 ₹25,000 ₹491,365 ₹30,000 ₹160,585
35 ₹550,328 ₹30,000 ₹213,456
36 ₹616,368 ₹30,000 ₹272,670
37 ₹690,332 ₹30,000 ₹338,991
38 ₹773,172 ₹30,000 ₹413,270
39 ₹865,952 ₹30,000 ₹496,462
40 ₹969,867 ₹30,000 ₹589,637
41 ₹1,086,251 ₹30,000 ₹693,994
42 ₹1,216,601 ₹30,000 ₹810,873
43 ₹1,362,593 ₹30,000 ₹941,778
44 ₹1,526,104 ₹30,000 ₹1,088,391
45 ₹1,709,236 ₹30,000 ₹1,252,598
46 ₹1,914,345 ₹30,000 ₹1,436,510
47 ₹2,144,066 ₹30,000 ₹1,642,491
48 ₹2,401,354 ₹30,000 ₹1,873,190
49 ₹2,689,516 ₹30,000 ₹2,131,573
50 ₹3,012,258 ₹30,000 ₹2,420,962
51 ₹3,373,729 ₹30,000 ₹2,745,078
52 ₹3,778,577 ₹30,000 ₹3,108,087
53 ₹4,232,006 ₹30,000 ₹3,514,657
54 ₹4,739,847 ₹30,000 ₹3,970,016
55 ₹5,308,628 ₹30,000 ₹4,480,018
56 ₹5,945,664 ₹30,000 ₹5,051,220
57 ₹6,659,143 ₹30,000 ₹5,690,967
58 ₹7,458,241 ₹30,000 ₹6,407,483
59 ₹8,353,230 ₹30,000 ₹7,209,981
60 Final Corpus ₹9,355,617 ₹30,000 ₹8,108,778
Total Amount Invested 2,50,000 9,00,000

 

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