Posted by:S. G. Raja Sekharan
Friends - I read a lot of blogs daily and I would like to share this story that I liked today.
But before that - The easiest and surest way to build wealth is to have a mind set of investing for long periods - typically ten years and above. Out of experience I can say that it is very easy to make 20% plus ROI compounded in India, if you look at a ten year time frame. As the time frame goes down to 2-3 years, it becomes more and more difficult to make 20% ROI consistently. Also, the power of compounding kicks in over longer periods and that truly builds wealth ( as you will read in the story below).
Let me give you an example - here is the HDFC Bank share price for the last ten years ( I know, you may not be investing through shares - but this is just an example).The light blue line is the HDFC Bank share price and the dark blue line is the BSE Sensex. You can click on the image to enlarge it.
As you can see, the share price has gone up and down every year and so one could make or lose money, if one looks at a one year time frame. But if you look at a longer time frame - there is a higher probability of getting a good appreciation. If you look at a ten year time frame - the chances of making money by investing HDFC Bank shares is very high.
So here are the actual numbers:
The HDFC Bank share price on 28th July 2006 was Rs 159.
Ten years later, the HDFC Bank share price on 28th July 2016 was Rs 1248.
The share price grew by 685% in this ten year period and the annual compounded growth rate was 23.8%.
If you could compound at 20% plus - you would double your money every 3.5 years.
In ten years - it will be 12 times - that is the way to build true wealth.
Read on - here is an interesting story of someone who built wealth through good investing over long period of time.