# How much do you invest each month and how much does it matter?

The following is my observation and few takeaways that I hope to share with the community to invite feedback and contrarian thoughts.

Admins, it’s my first post. If I have placed it in the wrong category, please suggest the right one.

Background: New DIY investor, approximately 5 years into the journey. Mutual funds and direct equity investing for the equity side. FD, and Debt mutual fund for the Debt side.

The factors that affect the outcome of an investment portfolio are:

1. Principal amount or starting capital.
2. Time.
3. Rate of return.
4. Additional deposits.

The impact of first three of these factors on the size of the corpus were fairly intuitive to me. Starting capital, the number of years you stay invested and the rate of return all decide on how big or small your corpus is.

I always thought that the more you invest the bigger your corpus would be. Which is true. But the impact on “additional deposits” to the entire corpus is not very obvious. Especially when the additional deposits are only a minor percentage of your current corpus.

I will explain with some examples. I will be using this compound interest calculator with these baselines:

• Investment horizon: 20 years.
• Expected return: 12%
• Additional deposits are made monthly at the end of each month.
• Compounding happens yearly.

Example 1: Current portfolio size is 10L.

When monthly SIP is 50,000 INR,

• Value at the end of 20 years: 5.52 Cr (rounded for simplicity).
• Value at the end of 25 years: 10.14 Cr.

When SIP is 1L monthly,

• Value at the end of 20 years: 10.08 Cr.

So with 50K monthly deposits, it takes almost 5 more years to have as much money as you would have if you invested 1L every month.

Example 2: Current portfolio size is 50L

When monthly SIP is 50,000 INR,

• Value at the end of 20 years: 9.38 Cr.
• Value at the end of 23 years and 4 months: 13.92 Cr.

When SIP is 1L monthly,

• Value at the end of 20 years: 13.94 Cr.

So it takes 3 years and 4 months more of 50K per month investments to match the corpus size of what at 1L per month investment can create in 20 years.

Example 3: Current portfolio size is 1Cr

When monthly SIP is 50,000 INR,

• Value at the end of 20 years: 14.2 Cr.
• Value at the end of 22 years and 4 months: 18.84 Cr.
• Value at the end of 25 years and 10 months: 28 Cr.

When SIP is 1L monthly,

• Value at the end of 20 years: 18.76 Cr.
• Value at the end of 23 years and 4 months: 27.85 Cr.

When SIP is 2L monthly,

• Value at the end of 20 years: 27.88 Cr.

A portfolio starting at this size and adding 50K a month will take just 2 years and 4 months more to match the portfolio that adds 1L every month.

Similarly a 1CR portfolio adding 1L monthly will only take 3 years and 4 months more to match the portfolio that is adding 2L each month.

The impact of the “rate of return” is more profound

For example, a portfolio of 1Cr size and monthly deposit of 50K for 20 years will be,

• 10.32 Cr @ 10% annual returns,
• 12.1 Cr @ 11%,
• 14.2 Cr @ 12%,
• 16.66 Cr @ 13%,
• 19.55 CR @ 14%.

Each 1% change is roughly 2-3CR in this example.

What is the point of this exercise?

I will share some background.

I have always intuitively believed that the more you invest the bigger your corpus will be. Which is not false.

However with this mentality I tried to reduce expenses at every turn and maximize my monthly deposit. It became borderline addictive (especially with the recent bull run post covid).

If you take the case of example 2 above (which I believe would be the case of a lot of people around here), the impact of investing 50K v/s 1L gets nulled out in a matter of just 3 years and 4 months, over a 20 year time period. That’s 50k more to spend each month on a better lifestyle and all the pleasures that life has to offer. You never know if you are going to live the next 20 years anyways.

Isn’t “Monthly Deposit” the only factor that you can control?

On prima facie, yes. But if your goals are truly 15 or 20 years away, then you can control your “Rate of return” but investing a higher percentage into equity oriented instruments.

Allocating more funds into investments that will potentially return more has a much higher impact than trying to invest more every month.

There was a related discussion in another thread on this topic that made me want to share this thought.

Key Takeaways

This is what I learned.

• Enjoy life now. Investing another 50K a month doesn’t make a huge impact once your portfolio is of a certain size. Make memmories that will outlive any economic crisis.
• Find ways to increase your return rate. 6% v/s 12% v/s 20% makes a world of difference. Take calculated risks. Start a side project. Invest more into equity.
• Stay invested.

What do you think?

Where did I go wrong? Or do you agree with me? I am curious to know and learn from your thoughts.

Thank you for your attention.

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To present my thoughts, I think, if we are bringing mathematics into picture, then there has to be a corpus in mind, towards which we can move with our investments. Return to some extent is not in our hands, so if we have a goal corpus, which does not move, then we can focus on reaching that goalpost with what we have got. We can look for opportunities, with varying degree of risks and rewards, and test them to see if they can help us reach our goal. And AFAIK, many investors of this forum don’t have any number in their mind, don’t explicitly talk about return, and are maybe trying to increase their net worth.

And it is advised to focus on careers than being caught up in market movements, climb the ladder in career, earn more, which can be directed to the market through many ways.

Age and time play an important role in investment journey, so in that sense, it will always be personal.

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Awesome point of view with related calculations. This is what I wanted and be assured of, as I am too bordeline addictive of investing almost all money each month, even neglecting some basic pleasures in life, sacrificing the NOW. The famous Marshmallow experiment is the culprit may be. Thanks for giving alternate nd more balanced approach in place of addictive savings habit.

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But you have not talked on compulsive savings disorder and his calculation assuring lesser monthly savings still achieving similar future corpus with lag of 3-4 years. Nobody has perfect number in mind, but for a good , satisfied life, may be 10 to 50 cr is good enough.

I said age. And age means everything that a person feels at that point in his life. Most young people are under some kind of an influence, and these days, there are influencers, so some young people may feel an urge to save more and more, sacrificing even the smallest joys of life. It may take a while for them to find what they need and what they want, and they will change their ways of life both in terms of living and investing.

Hence the need of teachers, or gurus, a word even the westerners use, gurus who are not only knowledgeable but also wise, who can show the path.

One can have a number in mind, work towards that number, and as he progresses, gets better, and matures, that number may seem small, and he can move to a bigger number. Or it could happen that, he may want to slow down, as time has passed.

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10 to 50 Crores for a satisfied life?, where do u live ? u r in Uber rich category if u r looking for such corpse in India,

You need to think many things, not just regular expenses…expensive medical expenses for both partners and if required for kids too, travelling , some for charity etc. 10 to 50 cr seems big amount…but when the time comes, believe me it appears not so big…

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There was a time when a friend of mine used to say that he would retire if he had 4Cr corpus. I used to think that was a crazy amount. Forget 4Cr corpus, I didn’t even have 4L to my name at the time.

Many years later that friend comfortably has 4Cr+ and retirement isn’t anywhere in the horizon. A family of four, lifestyle inflation, wants and needs have all played a part.

But the thing is, I don’t look at him and his 4Cr number and think that’s crazy. You cannot comfortably retire with 4Cr today if you are living in a metro and you are in your 30’s.

Mathematically it might be possible, but I don’t think it will be comfortable.

If money = purchasing power, the moment you do not have a steady income stream the purchasing power of your money goes down (in your head or maybe it’s just my head).

Let me explain. When you have a salary, you might be happy to spend 100% of that in a month. Because you know it’s coming back on the 1st of the next month. Once you retire, nothing is coming back. So instantly the money you have is more precious. Add age, health issues and other factors in the picture and what you have will not feel enough.

So it’s more mental than what you actually need. There are people who are happy with 2L in their bank account and there are people who will not feel comfortable even with 1Cr in their bank account. It’s all in your head and it’s very personal. Nobody is right or wrong.

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Thanks for your answer. Having a goal in mind makes planning easy, I agree. However having a goal amount also means you need to know when you need that money. If you are employed in the traditional sense, this is easy, you kind of know when you will retire and when you will need the money.

In my case, I have a goal number that I know I need but I don’t want to stop there. I am not planning on a retirement at a certain age. I am self employed, I tried retirement for a year when I was 32, I am done with the idea. I live better doing what I do.

I am sure there will be a time when my current skills are no longer valuable and / or I don’t feel like doing what I do. At that point I want this corpus to give me the opportunity to do what I want to do. I don’t know what that is today, so the goal is to maximize the corpus. It could be farming oranges, or it could be doing carpentry. We will see.

I am 35 currently, so I am taking 20 years as a safe time frame. My father and his father and his father all had plenty of energy at 55, 65, and even 75. So I am guessing I will have enough energy to pursue my projects at least until 55. If I am still alive that is.

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They call it personal finance for this very reason. Each person’s situation is different. One can have a number and move towards it, or can do it any other way, many ways to go forward. And if financialization is believed to be true, with growing retail participation, the liquidity hopefully will continue, and as such, the chance of becoming profitable can increase, so and the goal can be moved further, if everything remains the same, right from the availability of time to the desire to do it.

Math is math, but that match in finance gets customized as per our needs and wants. Some are conservative, some could be adventurous, some think they can take risk, all start at some point, they may change their styles in the future, they may not, and as our market becomes bigger, there could be more products to choose from.

Another point to ponder could be that one might get the feeling of exhaustion, and wants to take things easy, if a corpus is in place, through which cash flows are generated which can take care of everything pertaining to life, and he can concentrate on things that he like, more so, when time feels precious than the accumulated corpus.

In life and in finance, some have the fortune of reaching where they want to be, how they want to be there, and when they want to be there. Some may experience ups and downs, owning to a multitude of reasons, but if the journey progresses in a manner that is both satisfactory and beneficial, then the destination feels good and when retrospected, the journey brings a smile on the face, along with some green in the wallet.

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I’m feeling too lazy to do the math. But my gut says that the critical flaw in your calc is that your corpus is growing, but your SIP amount is not. And that is not a realistic scenario.

If one starts with a SIP of 50,000, do you really think this person will be SIPing 50,000 ten years down the line? Put a yearly growth of 10-12% in the SIP and see how the scene changes. After all, won’t salaries and savings grow at this rate?

The truth is if you are comparing 50k SIP versus 1 lac SIP…10 years down the line, the 50k guy would be SIPing maybe 1.5 lac and the 1 lac SIP girl may be SIPing 3 lac. So the gap between these SIPs which started out at 50k now is 1.5 lac.

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Good point to consider, let me do the math using 12% growth in annual deposits. All other factors as before. Using starting corpus as 50L

Starting with 50K, in 20 years = 15.72 Cr.
Starting with 50K, in 23 years and 8 months = 26.84 Cr.
Starting with 1L, in 20 years = 26.63 Cr.

So it takes 3 years and 8 months more to reach the same corpus value. Without additional deposits, this time was 3 years and 4 months. A difference of just 4 months.

In the grand scheme of things, that’s not a whole lot of extra time I feel.

The point is not to invest less, not at all. The point is that the difference between 1L and 50K isn’t a whole lot. So investing less on a certain month because you want to splurge a little or take your family on an impulse vacation or treat yourself to a brand new coffee machine wouldn’t matter much in big picture.

As I said before, the “investing addiction” was making me live in a future at the cost of the present. This exercise helped me see the full story.

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From your thread what I have concluded is…we need to focus on two important factors

1. Higher returns by fine tuning research
2. Long term holding period.

This will save us from committing higher savings for investing, and thus we can spend appropriately. So your corpus tend to depend less on your regular savings additions and more on returns and holding period.

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That’s very well summarized. Living in the now with a healthy saving for the future is all it takes.

There are many unknowns ahead, but letting the fear of the unknown take over the present is not conducive for a good life.

Hi, my doubt is doing sip is a good idea or it’s creating a bubble in the indian economy.

I am not clear on your question. By SIP above I meant regular monthly investments. It doesn’t have to be automated via a mandate.

We have no choice but to invest in monthly / regular intervals except when we get a big chunk of money in the forum of a sale / bonus / inheritance.

Please explain how it’s creating a bubble in the economy.

Lovely post Arun. You have provided a different perspective to those who wants to maximize the monthly investments.

Yeah , the goal is definitely to keep increasing the corpus and the target is unknown.

What I am currently doing is I have set some target corpus for short term period( say I want to have a corpus of XX cr by 2030). On that basis, I calculated how much I need to invest monthly based on my target return. At the end if I have more savings after all the expenses and investments , then I will deploy the excess to investments. Before this, I am worrying about any expenses I made. Now this approach is giving me some peace.

On a separate topic , I have another question with regards to how to take positions in a particular stock after deciding to buy. If members don’t have any objection, then I will post my question here. Or if there is any related thread, please share the link. I will post there and request you guys to share your strategy.

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We all are sharing our opinions and perspectives, and they may change in the future. I started as a FA investor, now looking at speculation, and if market does not give me opportunities, or gives me losses, I could be a value investor, just saying.

If you can afford committing more, and if you can increase your returns, that would help you have a bigger corpus, and if you can do this in a shorter period, then that would be great. The aspect of capital allocation should not be forgotten. As one spends more time in the market, I guess, he will put in more money, as he has gained experience, seen both profits and losses, comfortable with the ups and downs, have a process in place, might even have a plan if things go south.

Each of us are different w.r.t perspectives, abilities, financial situation, aspirations etc. This is personal finance, so we can take what helps our situation.

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This is a very sensible approach and the way to go when you have a target corpus in mind and a time frame. That math we do to get that peace of mind

I use the following approach:

• What happens if I do not add a single rupee into my portfolio from today. How will my life turn out to be.
• Repeat the same with X monthly deposits, 2X monthly deposits, 3X etc.
• Any month I make sure I do at least the X. Anything over this is a bonus.
• I have also considered a case with negative returns and principal losses. But that was depressing.

Thank you for your reply.

This is better suited in a different discussion. There is an entire category dedicated to stock valuation - Stock Analysis & Valuation - ValuePickr Forum

Part of equity markets, and equity being a volatile asset, the higher it goes without a strong base, the quicker the fall could be. Math has limitations in the market, as greed, fear, hope, and another rarely talked about emotion vanity, play a role in delivering the unexpected return, to the upside or downside. Gone are the days, when one can surely say MFs can deliver this much. Market has matured, and tech has done its part too. By one conservative estimate, one cannot expect more than 10%. Hence the inclusion of more capital, and managing it actively, even one chooses passive funds. And as one ages, the concept of opportunity cost starts to be visible, and the charm of equity may fade.

Many interconnected things, and as Buffett said, simple but easy.

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