Can we reach our goal quicker ?
Accelerate our investment towards our goals
Increasing your investment periodically can expedite goal achievement. Various methods exist to accelerate investment progress, such as opting for riskier ventures. However, this approach may not be suitable for everyone due to discomfort with higher risks. This article proposes an alternative method: incrementally increasing your Systematic Investment Plan (SIP), reducing the time needed to reach your goal by two years or more.
Scenario
Let us assume you have a target to reach 1 crore and you plan to contribute Rs 50,000 per month. Your goal is approximately 7 years from now. You have invested in mutual funds and you believe that this will give you a CAGR return of 11% p.a.
Solution 1
If you invest Rs 50,000 per month, over a period of 7 years, you will approximately make Rs 80 lakhs which is 20 lakhs short of your investment goal. Therefore clearly, this does not work out.
Same SIP throughout
Solution 2
As you are not meeting, the goal, you decide that, you will increase the investment by Rs 10,000 every 3 years or so. You have almost reached your goal. but any variances in return, you would not be comfortable with just reaching the goal.
Increasing SIP by 10K every 3 years
Solution 3
The simplest approach to achieving your goal involves boosting your investment by 10% annually. Notably, the incremental increase amounts to just Rs 5000 in the initial year, followed by Rs 5500 in the subsequent year, and so forth. This incremental strategy alleviates pressure on the individual to significantly raise their investment while steadily progressing towards their objectives. Furthermore, compounding plays a vital role, providing an additional safety net by the end of the period.
Increasing SIP by 10% every year
Conclusion
We have our goals and priorities and we need to achieve this goals within a targeted period. To achieve our goals we need to be disciplined with our SIP’s. We have seen the mid-cap and small-cap run and these helps us achieve our goals and they provide us the kick in the portfolio return. Will the run continue every year ? Unlikely ! However, just as we discussed that asset allocation is important in my previous article, it is also important that we review our portfolio and our goals on a periodical basis. Periodic increase in our SIP , based on the availability of funds, helps us achieve our goals quicker.
The new year begins soon, review your current investments, check whether this will be sufficient for your goal that you have planned it for, and adjust your SIP amount suitably.
