When it comes to investing, there are several things that are not in our control as investors. The economic conditions, events triggering changes in the market, how the market reacts to such conditions and hence the returns in the near term, and so on.
But there are still some things that we (the investors) can influence.
1. The amount we can put into investments
2. The time period of our investments
In the Compound Interest formulae, out of three factors namely, invested amount, interest (returns), and the number of years invested, we focus more on the returns, while the other two also influence the overall growth of the investment fund.
Here is an illustration where Amit and Ajay begin investing Rs.1 lakh each year (about Rs.8000 per month) into a well-researched product. As soon as he received his raise, Ajay made a conscious decision to raise his investments by 10% annually. Both of them continued to invest for 20 years without redeeming at any time during the period.
Here are some observations from the 20 years of their investment journey.
At the end of the 20 years period, Ajay had made more than 100% of what Amit made!
Amounts highlighted in ‘Blue’ are where additional 5 lakhs were achieved. During his fourth year, Amit earned his first “5 Lakhs.” His subsequent “5 Lakhs” was made in under three years. He started making “5 Lakhs” every year after 13 years of consistent investments. This is the magic of compounding!
Ajay achieved the same even sooner than Amit.
After all, we are making an investment toward our goal, and achieving that goal is our first priority. Hence, it is prudent to take advantage of the factors we have under our control rather than solely relying on external factors to build investments.
#Consistency #Compounding #Investment #planning
For one to decide on buying a second home, let alone the first, a self-enquiry will be the first step.
A few of the reasons usually are:-
- As and when the family grows, one needs to look for a larger home.
- Choosing to be near work/school.
- Well-planned and Conscious Upgrade of lifestyle.
- As the family nest becomes empty, wanting to move closer to relatives/children. Hence need for a change in location.
Unless there are valid reasons supporting the purchase of a second home, it should be viewed at par with other investments like Equity stocks, Mutual Funds, and NPS (Tier I and II).
If one decides to buy a house as an investment, there are a few questions to ask oneself:-
- Will the rental yield from the investment justify the purchase?
- Will one be able to take care of the maintenance of the property without much hassle?
- Who will look after the house, when one moves to another location/country?
- Will the next generation have an interest in the property?
- Will one be able to liquidate the investment as and when required?
- Will any other investment give better returns without the overheads of owning a real estate property?
Before purchasing a home for investment, it is always better to compare it with various other forms of investments and then arrive at an informed decision.
#secondhome #investments #homeloan #realestate