Category: 2. What is Investment? How to Start Investment Plan?

Let us understand by above scenario with additional two simple assumptions:

• You have managed your fund and succeed in acquiring 15% returns year on year.
• After 20 years, you do not have to pay home loan further. You expenses are reduced by Rs.3,00,000/- (Rs.25,000 * 12 Months) henceforth.

Years	Salary Income	Cash Savings	Cash Y-o-Y	15% Return	Net Balance
1	7,80,000	1,20,000	1,20,000	18,000	1,38,000
2	8,58,000	1,45,200	2,65,200	39,780	1,84,980
3	9,43,800	1,73,976	4,39,176	65,876	2,39,852
4	10,38,180	2,06,770	6,45,946	96,892	3,03,662
5	11,41,998	2,44,075	8,90,021	1,33,503	3,77,578
6	12,56,198	2,86,441	11,76,463	1,76,469	4,62,911
7	13,81,818	3,34,481	15,10,943	2,26,641	5,61,122
8	15,19,999	3,88,875	18,99,818	2,84,973	6,73,848
9	16,71,999	4,50,385	23,50,204	3,52,531	8,02,916
10	18,39,199	5,19,856	28,70,060	4,30,509	9,50,365
11	20,23,119	5,98,229	34,68,289	5,20,243	11,18,472
12	22,25,431	6,86,549	41,54,838	6,23,226	13,09,775
13	24,47,974	7,85,982	49,40,820	7,41,123	15,27,105
14	26,92,772	8,97,820	58,38,640	8,75,796	17,73,616
15	29,62,049	10,23,501	68,62,141	10,29,321	20,52,822
16	32,58,254	11,64,622	80,26,762	12,04,014	23,68,636
17	35,84,079	13,22,957	93,49,719	14,02,458	27,25,415
18	39,42,487	15,00,475	1,08,50,194	16,27,529	31,28,004
19	43,36,736	16,99,363	1,25,49,557	18,82,434	35,81,796
20	47,70,409	19,22,046	1,44,71,603	21,70,740	40,92,787
Net Cash Balance at Retirement Age:	2,83,73,662

Above calculation results are quite joyful:

• After 20 years you have accumulated around Rs.2,83,73,662/- (approx. around $4,36,517).
• You have developed the skills to invest the fund and get 15% returns even after post retirement.
• Considering your fixed expenses are same after retirement and expenses will continue to grow at 8%. It’s an ample amount of money to keep you alive till 21 years post retirement life. Which is good enough to live your life happily even after retirement.

Having figured out, how important is to invest your fund and what kind of returns one should expect by investment to live your life happily even after retirement. Now let us understand 3 things, Why, Where and How to select the asset class that outfit your individual risk and return outlook. Investment assets are characteristics based on risk and return. The following are some of the popular type of investments one should go thru…

• Fixed income deposits
• Stock Market
• Real Estate
• Commodities (Valuable Metals)

Let us calculate the retirement and financial planning with few simple assumptions:

• Salary hike is expected to growth at 10 percent per annum year on year.
• The cost of living is likely to go up at inflation rate i.e. by 8% year after year.
• Mr. Trader is currently 30 years of age and Mr. Trader map to retire at the age of 50. Which conclude only 20 years for retirement planner.
• You don’t have it in mind for occupation after you retire and your expenses are fixed and don’t forecast any other expenditure.

Going by these assumptions, here is how the cash balance will look like in 20 years as per Table

Years	Salary Income p.a.	Expenses Y-o-Y	Net Cash Savings
1	7,80,000	6,60,000	1,20,000
2	8,58,000	7,12,800	1,45,200
3	9,43,800	7,69,824	1,73,976
4	10,38,180	8,31,410	2,06,770
5	11,41,998	8,97,923	2,44,075
6	12,56,198	9,69,757	2,86,441
7	13,81,818	10,47,337	3,34,481
8	15,19,999	11,31,124	3,88,875
9	16,71,999	12,21,614	4,50,385
10	18,39,199	13,19,343	5,19,856
11	20,23,119	14,24,890	5,98,229
12	22,25,431	15,38,882	6,86,549
13	24,47,974	16,61,992	7,85,982
14	26,92,772	17,94,952	8,97,820
15	29,62,049	19,38,548	10,23,501
16	32,58,254	20,93,632	11,64,622
17	35,84,079	22,61,122	13,22,957
18	39,42,487	24,42,012	15,00,475
19	43,36,736	26,37,373	16,99,363
20	47,70,409	28,48,363	19,22,046
Net Cash Balance at Retirement Age:	1,44,71,603

Above calculation results are quite shocking:

• After 20 years you have accumulated around Rs.1,44,71,603/- (approx. around $2,22,640).
• Considering your expenses are same after retirement and expenses will continue to grow at 8%. It’s an adequate amount to keep you alive for about 4 years post retirement life but after 4 year onwards you will be into financial crisis. How would you manage year on year after 4 year? Is there any way to make better investment plans good enough for post retirement?

There are different ways for investing like bank fixed deposit, real estate, gold, currency, stock market, bonds, etc. Before you park your in any of the market one should perform research to analyze returns with time duration based on the past performance and conclude whether your investment opportunities is going to fulfil your retirement expenses. We will get into dept to understand best ways to invest for retirement.

Let us take an illustration to understand with the basic concept of investment. Let us assume Mr. Trader’s current monthly income and expenses report.

Income:	Rs.65,000/-	(approx. around $1000)
Expenses Summary:
1. Home Loan Repayment	Rs.25,000/-	(approx. 39% of Salary Income)
2. House Hold Expenses	Rs.20,000/-	(Includes Food, Transport, Shopping, Medical, etc)
3. Miscellaneous Expenses	Rs:10,000/-	(Including Society Maintenance and Electricity Bill)
Total Monthly Savings:	Rs: 10,000/-	Calculated as: Income – Expenses(Lets ignore the income tax fact for the time)

Investment refers to investing money or purchase of goods or assets with the intension of making profit in the long run. For example: Investing money into bank fixed deposit, buying real estate assets, purchasing gold, Investing in financial assets like stocks, bonds, futures, currency, etc and selling on the future date with the hope of appreciation and making profit out of it.