“When you say ROI, do you mean Return on Investment or Risk of Inaction?”- This paraphrase perfectly goes with the circumstance when you’re waiting for the right time to invest because ironically there is no such thing as “right time”.
The question that builds more curiosity in the reader’s mind is whether a higher rate of return is enough to generate more wealth and achieve financial goals.
The saying above summarizes and delivers the essence of the three most important factors of investing- Amount of Investment, Return on investment, and your time horizon.
You need to learn that the amount of money you invest or the time when you start your investment journey plays a vital role in getting a higher rate of return.
Your ultimate objective while investing is to generate wealth over time. You invest in assets like stocks, shares, and mutual funds or in commodities with anticipation that in return you’ll have increased value of these assets and can achieve your financial goal.
Relying on market performance and fluctuations while investing is generic, but it plays a significant role in anticipating higher rates of return. While the market goes high or low, you should avoid-
- Withdrawing the invested money
- Stop the ongoing investment
- Postponing the planned investment
Certain questions arise in investor’s mind during the investment process-
- When and how much can the market go high or when does it reach the peak condition?
- Is it possible to predict the market’s lowest condition or the time period when it falls?
- Should they put a break on your investment process due to fluctuating market conditions and wait for the right time to get a higher rate of return to achieve their financial goal?
- Are they going to keep your money aside for investment only, and not going to use it for another financial purpose?
Let’s take a look at what happens to investment during market fluctuations-
| Start date | End Date | Amount of SIP | Invested Amount | Value of Investment | CAGR | |
| Mr. X | 01/02/2017 | 31/01/2022 | 2000 | 1,20,0000 | 2,05,000 | 11.30% |
| Mr. Y | 01/02/2019 | 31/01/2022 | 2000 | 72,000 | 1,30,000 | 21.77% |
The conclusion from the observation-
- During the early years of investment, the impact of compounding is comparatively small but with time, you can generate more value for your investment, as in the case of Mr. X.
- Although Mr. Y had a higher rate of return in comparison to Mr. X, he made a lesser value of investment because of the delay & postponement in investment.
- Having a higher CAGR may look satisfying but doesn’t always provide you with a higher value for your investment.
- Market conditions are unpredictable. So, start early and give your investment more time to grow as it can lead you to a higher value for the investment.
- Being consistent and disciplined with your investment helps you in more wealth creation.
Power and effect of Compounding-
Starting early investment & being consistent through SIP provides you with an astonishing result in long-term investments & wealth creation to achieve your goals.
You have to invest a fixed amount of money monthly or quarterly over a time period. Compounding effects make sure that you not only earn a return on the principal amount but also through the gain that you get at every interval i.e. gain on the principal amount. This means you’re going to generate returns on your return.
Given below is an example of how consistency leads to better results-
| Bill | John | |
| Initial investment | ₹6,000 | ₹7,000 |
| Final value | ₹20,000 | ₹18,000 |
| Time Period (in years) | 3 | 2 |
| CAGR | 49.38% | 60.36% |
Bill invested continuously for 3 years without worrying about market volatility and got a higher value of return than John who waited for the market to become stable and withdrew the invested amount in 2 years.
Although John’s CAGR or rate of return is higher than Bill’s, the wealth gain is lower.
Following observations from the above data-
- The disciplined and consistent nature of investment by Bill leads to better results in the form of higher wealth gain.
- A higher rate of return doesn’t always provide you with a higher investment value.
- Waiting for the market to become stable made John reluctant to invest earlier, which in turn affected John’s wealth gain. The best time to invest is “now”.
Final thoughts
The continuous cycle of market volatility is highly unpredictable and everyone’s reason to invest can be different. So, choose the investment type that goes with your goals, timeline, and risk tolerance ability.
However, two factors that are under your control are- when to start and how much to invest to reach your objective. So, focus on starting investments early and securing your future.
In the end, you have various ways to build up a solid investment profile via bonds, mutual funds, stocks, real estate, and many more. So, build up a diversified portfolio and invest consistently and with well-planned strategies to generate better results, which will pay off in the form of a high rate of return & value to your investment.
