As an investor most of us focus on returns we get on our investments. But what we fail to understand is the opportunity that is lost due to delay in starting a particular investment. This is known as Cost of Delay.

This delay happens due to some or any of these most common barriers/reasons listed below

1. Our inability to quantify or measure the loss due to delay in taking investment decision

2. We don’t really understand the value of ‘TIME’ factor in Power of Compounding process

3. Lack of trust in that particular investment, so we lack focus on taking an action

4. Day to day problems don’t let us take an initiative or action

5. We delay as we think that we will invest more later when our income will increase

We are not able to measure the loss or cost of delay because as we don’t have a financial plan well written in our computer or closet. We confuse Financial Planning with Investment Planning. Financial Planning shows you projections for each & every goal you set today for your future & how you will achieve them.

Suppose a person aged 24 years has spare Rs. 50000 today, now the person has 2 options; either spend the whole money over an IPhone or buy a Rs. 10000 phone & invest the rest Rs. 40000 into mutual funds say at a rate of 14% for your retirement.

What will the person choose? most of the young people will choose the first option. They will buy an IPhone because they will think that they have a long earning life ahead of them to earn & invest. They will think it’s just Rs. 40000. But the financial planning says that the person has lost Rs 4473368 from his retirement corpus which could be accumulated till age 60. If this person would have known this projected loss, he would have definitely opted for the second option & would have started early. Bade bujurg sahi kehte the likh likh ke yaad karo, nahi to kuch yaad nahi rahega.

That’s why have a well written Financial Plan with you which has well measured financial goals & ways to achieve them. I know you would have never thought like this. 

Now, let’s understand the impact of ‘TIME’ on future value of our investments.

Let us understand by comparing the investors aged 23 & 28 years.

A person who starts investing monthly through SIP of Rs. 10000 @ 12% at a age of 23 years will invest Rs 46 lakhs till the age of 60 years. The amount accumulated by then would be Rs 7.78 crores. Whereas a person who starts investing from 28 years of age, keeping all the investing parameters same will invest Rs. 40 lakhs till the age of 60 years, which will become Rs. 4.37 crores.

Also, now if the investor who is starting at the age 28 if he wants to reach at Rs 7.78 crores then he has to invest monthly Rs. 17809 (see values in table above in color red )… 78% more investment required due to just 5 years delay..Painful but true.

Now, looking at both the investment scenarios we can clearly see that there is only a difference of Rs. 6 lakhs in the investment made by both the investors. While there is a difference of 3.41 crores in the wealth accumulated…

Why this huge difference is created against such a small amount?. This Rs. 6 lakh invested during the initial days has grown 57 times in value for the investor who started just 5 years early. This happened due to the extra 5 years time given to compounding over the accumulated amount till 55 years of age by investor A compared to Investor B.

Let’s see how

We underestimate the loss due to delay in investments or cost of delay, as during our early earning years since our income is low, so we think that few thousand rupees won’t add much to my wealth. We do a maths in our mind for ex. 10000*12 months*1 year years=1.20 lakhs …ok I will definitely start next year with a bigger amount…But that next year never arrives until we find our-self in trouble & panic.

But, in absence of formal financial planning, we fail to understand that after delay of few years it will become herculean task to achieve the corpus required at the time of retirement or for other life goals. For most of the investors, the investment required to achieve the goals will even surpass total income.

You would have now understood why TIME is always known to be most powerful & precious resource in the universe. It has the ability to convert dirt into mountains & mountains into dirt. Now it’s up to us to let it work in our favor.

Do write if I have missed something which must also been discussed for better understanding of the topic.

One response to “Cost of Delay”

1. click here says:

   December 1, 2018 at 2:30 pm

   Great and nice

   Reply