Whenever anyone starts investing, the three most common questions that come to his mind are
- how much to invest?
- for how long?
- where to invest?
The rule of 15 will help in getting the answer for the first 2 questions.
This rule is good for someone who is investing without any goal in mind. The rule simply says that if you invest Rs 15,000 p.m. for 15 years giving a return of 15% p.a. you will build a final corpus of Rs. 1 Crore.
SIP Amount = Rs 15k per month
CAGR =15%
Time horizon =15 Years
Final corpus = Rs 1 Cr
Your total invested amount is equal to just Rs 27 lakhs. However, over the time period of 15 years, you will build a total wealth of Rs 1 Crore.
Now let’s see what happens if we increase the tenure by just 5 more years. So, we invest Rs 15,000 at 15% for 20 years. Here just by increasing your investment tenure by just 5 more years you will build a total corpus of Rs 3 Crores. This is the power of compounding and that’s why it is considered the most substantial factor for wealth creation. The time period is a significant factor when you are investing.
In this post, you can notice how by increasing the time horizon from 15 to 20 years; you can get three times bigger final corpus. And that’s why it is recommended to start investing as soon as possible.
“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.” -Albert Einstein
Note: In the scenarios discussed above, 15% is considered as the average compounded annual growth rate (CAGR) over the years. However, you must understand that it is just an average as no market can give consistent 15% returns. Returns can be higher in bull market and lower in bear market. The longer you stay invested higher is the chance of averaging out the volatility.
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