Roongta said, "Since you have a longer time horizon, you can allocate more towards your high-risk, high-reward assets such as equities. As you grow older, the equities allocation will start reducing over a period of time."
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Below is the verbatim transcript of the interview
Q: A lot of people delay their investments in the hope that there is enough time or maybe they do not have sufficient surplus to invest early in their careers. How beneficial is it to begin investing early or can it be delayed by a few years?
A: To answer first question, let me use an example to explain how it is beneficial to start investing early. If you take a case of a 30-year-old person who sets aside Rs 1,000 a month, this is just for calculation purposes for a period of 30 years and has anticipated retirement age of 60 years. If you generate a long-term return of equity 14 percent annualized return, the corpus that this person will accumulate would be about 54 lakhs with Rs 1,000 over 30 year period. If he delays this by just five years, he says that I have enough time for retirement; I can probably start investing at 35. If he starts making the investment from 35 years of age, so he has another 25 years left, if he invests the same Rs 1,000, the corpus that he will accumulate will not be 54 lakhs but it would be about 26.5 lakhs.
So, it is about half of what he would have accumulated otherwise by just a five years period that he has delayed. That is the price that he would pay. Suppose, if he needs to accumulate the same amount of 54 lakhs by starting at 35, he has to now start investing Rs 2,000 a month for the next 25 years. This is the cost that you would pay to delay every year of your investment. So, there is a huge cost that you are paying not only in terms of losing time but even otherwise. There are other benefits too. If you start early, there are usually less liabilities in the early years. So, there is less burden on your finances if you are setting aside some money for investments.
Besides, since you have a longer time horizon, you can allocate more towards your high-risk, high-reward assets such as equities. As you grow older, the equities allocation will start reducing over a period of time. So, these are couple of benefits. What I would normally recommend or suggest is that why even wait for 30 years of age. If the first time you get your pay cheque, ideally an investor should start investing immediately, set aside a portion of it for his long-term requirement.
Q: How will you priorities? What if the investor wants to go for a house, would that be the priority and not think of putting some money aside for retirement?
A: Buying a house is a very tricky question. If you are buying a house early in your life for your self occupancy purposes then it maybe right to allocate all your investments for EMI purposes for your house purchase. But if the purpose of buying the house is again only for an investment purposes, then you need to stick to your asset allocation plan, which is that you need to have some bit on equities, into debt, you need to have precious metals into your portfolio and then real estate.
So, it depends on what is the purpose of buying the houses. If it's for self occupancy that you can allocate your entire fund for a moment and as your income increases going by you can start having equities and debt into your portfolio. But if it's for investments then it is better to stick to asset allocation plan.
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