The MVK of investing | Value Research What is the barest minimum you should know about savings and investments?

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The MVK of investing

What is the barest minimum you should know about savings and investments?

The MVK of investing

Reading about technology startups, one might come across the term 'Minimum Viable Product', or MVP. This is defined as a product which has been developed to the point where it has just enough features to be used and tested by real users. If rightly designed, applying the Pareto principle, it possibly has those 20 per cent of the features that satisfy 80 per cent of the needs.

This makes me wonder if there is an equivalent in terms of knowledge about investing. Is there a level of Minimum Viable Knowledge (MVK) about investing? Can savers possess a set of MVK which will help them in investing their money wisely?

I think there is and it has surprisingly a few items on it. The biggest item in MVK would be an understanding of compound interest, which probably covers about 50 of the 80 percentage points required by the Pareto principle. The reason is that the biggest problem that Indian savers face is not one of the more esoteric ones but that they don't start early enough. If they do, they don't save enough, and in most cases waste these years on investments that don't pay enough.

Here's the obligatory example. An investment of ₹1 lakh for 25 years at 10% return becomes ₹12 lakh. And if you invest a little late (for 20 years) and a little less (₹80,000) and earn a little less (8%), you will earn ₹4 lakh instead of 12. One third! Those who understand how compounded earnings work never make this mistake. Down the years, there's a huge advantage for starting to invest at the age of 25 instead of 30. But then, who knew this at the age of 25? A small number do. Be a part of that.

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