you may have heard this in many personal finance forum: It is hard to get to a net worth of Rs. one crore. After that things become easier. In my experience, this is not an universal truth. Going from Rs. 10K to 20K networth and going from Rs. 1 Crore to 2 Crore could have similar ease or hardship. Let us consider the influencing factors.
Sequence of returns risk: I could have hit Rs. one crore after say 7-10 years of inevsting (this duration will depend on the amount we put in, our asset allocation and market conditions). The next one Crore may take one year or 15 years depending on market conditions.
But will that one crore milestone not make me that much more experienced? Well it all depends on the experience. If we have gone through years of a bull market, we might be rattled by a sustained bear market. Or it could be the other way around. If reaching one crore was peppered with several poor return years, we might learn equanimity and learn to say “this too shall pass” during bumper years.
Remember that long-term investing in equity comes with no guarantees of success!
Capital invested: Most investors do not recognise the importance of capital invested. The amount we put in each year and the rate at which our investment increase year are crucial to growing wealth.
The best way to accelarate wealth accumulation is to rapidly increase capital invested year on year without debt. This is not always possible. Due to a change in personal or professional cirumstances there can be a significant dip in investment and net worth growth will slow down.
Change in lifestyle: Many people declare that they “deserve” finer things in life once their salaries or net worth grow. If the rate of spending suddenly spikes then again wealth accumulation will slow down. So let us rephrase the statment made above.
The best way to accelarate wealth accumulation is to rapidly increase capital invested year on year without debt and by keeping expenses in check. If this is in place, we will have to rely on timing luck (aka sequence of returns risk)
So nothing gets easier after one Crore. The “After one crore things become easier” refrain is similar to “Don’t worry, after 2-3 years parenting becomes easier”. No it does not.
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Dr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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