Investment Psychology: I am already 40+ years old, Am I late to begin investing?
Recently, I had a discussion with my colleague over investment and compounding. How it is always good to start early in the ’20s with a little amount. Suddenly, he was like, you have already excluded me from the equation, I am already 40+ years old, Am I already late?
This one is a very basic psychological question; it literally stops many people from starting investing at a later age in their life. It does not make sense to them why they should even do it. In the previous article. We talked about Sandeep, 25, who has a lifestyle expense of 20,000 per month; he could achieve his Financial Freedom goal within the next 27 years for his entire generation. (With 4000 per month with 3% annual, increment SIP in an index fund. It includes a tax rate of 10% on future monthly Income, Fund Expense of 0.25% per annum and Expected annual return of 13% and Inflation of 4%). So by the time, he will be 52, He can start withdrawing the amount he always wanted in his life. A life, where he does not have to work to maintain his lifestyle. Even if you look at the case of Sandeep, Age 25, He is also getting his financial freedom in the early ’50s. So, if you are starting in your 40’s with zero savings, you will get it done by the mid or late ’60s, It will take the same compounding time, keeping growth rate, inflation, tax and fund expense the same.
Here, let us see how 40’er can do it by the next 12–18 years
Question: How is the 40’er going to get financial freedom in the early fifties? (i.e. in only 12–15 years)
Answer: Assuming a 40’er is already in mid-career with a decent salary, Good Savings and already with an investment pot (Assuming pot equivalent of 15 months of current salary, which can grow by 9% per annum).
Unlike Sandeep — who had a lower Salary and less or no Investments to start with, this 40’er wants to achieve it in 12–18 years — where Sandeep has 25+ years to achieve…
So, the 40’er has to up his investment to say about 35–60% of his salary with a 3% annual increment to take care of the loss in compounding. In addition, this can be speed up; if 40’er is ready to accept the expected lifestyle expense of 60–75% of current monthly income. Else, 40’er have to wait for the next 20–27 years to match 100% of his monthly income lifestyle. You can refer to the matrix for the time required with respect to investment & lifestyle percentage.
Psychological point.
Even if you look at the case of Sandeep, Age 25 or 40’er, They are getting their financial freedom in the ’50s. So here, everyone wants financial freedom in their early 30’s, not in the ’50s or ’60s.
Yes, it’s the hard truth, you are not going to be free in your 30’s but you already have a decent lifestyle but this investment will make sure that the same livelihood struggle should not be repeated to your children, where they will have little freedom to work upon their dreams without much worrying for the day-to-day expense. Once this mind freedom comes, your kids can do their best in careers, when they do not have to worry for next day or next month bills & meals or job. Yeah, everyone asks why I have to do it, why it would not be the case for my elder generation; the same question will come to your kid’s mind for you, so someone has to take that plunge, be that someone. And always have a higher purpose than you, so you stay committed to your goal for your generation.
It’s not like you entirely not going to enjoy it at all, Yes, You are not going to have your financial freedom in your ’30s & ’40s, But surely, You can enjoy your life in the ‘50s/’60s. Just keep yourself healthy & fit and planned it.
Anyway, if you are still not at all going to do it now, you are not going to have this freedom. Thinking why I should do it, I have a retirement fund, what is the point of having it in the early ’50s and ’60s? But in that scenario, you have to keep on working till the end of life to maintain your present lifestyle and later a much more frugal retirement lifestyle.
Also, you won’t be able to provide your kids with a fortune that can provide solid financial stability to take off their flight to higher success without worrying about basic necessities, which you have already struggled in your 20’s. Providing education and other basic needs to kids is always a great job, but accompanying it with financial stability, will surely thrive your entire generation.
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