For at least a decade now, investment advisors have been grappling with the one crore problem. The one crore problem most often manifests itself in the form of this question: If I invest in x investment at the rate of y per month, then will I be able to accumulate Rs 1 crore in z years. You can see this question in various online for a, financial agony aunt columns in publications and even magazine headlines.
Generally, the advisor is then expected to solve this equation for various values of x, y and z. Depending on which of the three variables the advice-seeker has filled in himself, the answer can be given to various degrees of usefulness or uselessness, as the case may be. For example, if only z (the number of years) then a reasonably useful answer can be given. Unfortunately, in the most frequent form of this question, both z (years) and y (monthly amount) is a given. Sometimes, even the asset class is specified, as in: I can invest Rs 30,000 a month. I’d like it to become Rs 1 crore in 10 years. Which mutual fund should I invest in? In these cases, the question becomes like something out of a Bikram-Betal folk tale. There’s no answer because the question is based on a mass of assumptions that are invalid.
The most important input is not what you invest in, but a whole set of things that one must not do like, investing steadily for the entire period without getting side-tracked by events. The number one cause of long-term savings strategies going wrong is getting misdirected along the way. Equity markets have trouble and people stop investing, or pull out. Then they go up and after they have done so, people put money back in and then ‘compensate’ by putting in even more money. The magic formula lies not in the numbers and names, but in managing one’s own attitude, psychology and actions.
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