The 500 Year Plan

Amar Pandit , CFA , CFP

I was working on a 500 Year plan for my family. I know there are many ifs and buts here. It’s likely that there are many questions such as ‘Is he crazy? Or Who does this?’ going through your head but let’s park all these questions, doubts, and judgements aside for a few minutes. I know I might not seem that crazy to you by the time you finish reading this post. With that bold assurance in place, let me now ask you a seemingly simple question.

Assume you have only Rs.1 Lakh to invest. You will earn 10% compounded per annum on your investment. This means you will roughly double your investment every 7 years. Before you jump, I know the Rule of 72, which is a quick and simple rule to calculate how much time it will take you to double your money. For e.g., to double your money in 4 years, you will need a return of 72/4 = 18%. Thus, to double your money in 7 years, you will require 72/7 = 10.285% p.a. But for simplicity, let us assume 10%. What do you think the value of your Rs.1 Lakh will be in the next 154 years at this rate of return (10%)?

Let me ask you this question again.

Assume you have only Rs.1 Lakh to invest. You will earn 10% compounded per annum on your investment. This means you will roughly double your investment every 7 years. What do you think the value of your Rs.1 Lakh will be in the next 154 years at this rate of return?

Take your time.

I will wait for you to come up with a number.

By the way, I asked this question to around 50+ financial professionals and 25+ seasoned investors.

And I know you are keen to know their responses. But before I share the results, I would like to know what your number is. Did you come up with a number?

If so, write it down.

Whatever you would have written, I urge you to take one more shot and write a higher number.

Now take a third shot and write another higher number. You might want to take a few more tries.

I believe you have completed this exercise sincerely.

Did you get the answer as Rs.10 Crore?

How about Rs.100 Crore?

Even if you got Rs.100 Crore as the response, I am happy to tell you that you are nowhere near the correct answer. Pardon me for having a little fun here. I am enjoying this question and I plan to ask this question to every person I meet. The only people who will get this answer right are the readers of this blog .

Why did I pick Rs.100 Crore? Because that’s the highest response I received in my survey.

Most people were stuck between Rs.25 Lakh and Rs.3 Crore. After several attempts and prompts, most professionals did not go beyond Rs.100 Crore. A few smart ones deflected the question by saying the number must be really large. But I am not the one to relent and I managed to extract an answer from these folks too. No one really answered beyond Rs.100 Crore. But 1 professional managed to hint at Rs. 1000 Crore.

Is she correct?

What do you think?

Is this too high or too low?

Well, it’s not high but it’s too low.

Don’t believe it.

Let me give out the answer now.

The correct number is Rs.41934.04 Crore (Rupees Forty-One Thousand Nine Hundred and Thirty Four Crore Only).

Yes, you certainly read that number right.

Rs. 1 Lakh becomes Rs.41934 Crore in 154 years.

What about Rs.1 Crore?

The answer is Rs.41,93,404 Crore (approximately Rs. 42 Lakh Crore). This is more than the size of the entire asset management industry in India today.

The numbers were so ridiculously high that I stopped (rather paused) after 154 years. It didn’t make sense to go to 500 years as the numbers would have been too difficult to even write or pronounce. But that’s not stopping me from my 500 Year Plan. I am working on it.

Many of you are still not likely to believe the numbers. Thus, here is a visual giving the progression of the numbers.

Start – Rs. 1 Lakh
7 years – Rs. 2 Lakh
14 years – Rs. 4 Lakh
21 years – Rs. 8 Lakh
28 years – Rs. 16 Lakh
35 years – Rs. 32 Lakh
42 years – Rs. 64 Lakh
49 years – Rs. 128 Lakh
56 years – Rs. 256 Lakh
63 years – Rs. 512 Lakh
70 years – Rs. 1024 Lakh
77 years – Rs. 2048 Lakh
84 years – Rs. 4096 Lakh
91 years – Rs. 8192 Lakh
98 years – Rs. 16384 Lakh
105 years – Rs. 32768 Lakh
112 years – Rs. 65536 Lakh
119 years – Rs. 131072 Lakh
126 years – Rs. 266144 Lakh
133 years – Rs. 524288 Lakh
140 years – Rs. 1048576 Lakh
147 years – Rs. 2097152 Lakh
154 years – Rs. 4194304 Lakh

The numbers are indeed correct.

If you see the first 14 years, it might seem like nothing is happening.

How many of us have the patience to sit for 14 years without being distracted by the game of market timing and the lure of high returns by a certain portfolio manager?

Very few. We get distracted with things such as – Is this the right time to invest? Who is the best performing fund manager? This PMS has cracked the formula. This so and so Ji knows the insider stuff.

But let me not digress.

The key point is to viscerally understand the power of compounding and the role it can play in our lives. While we have learned compounding in school and we know the concept mathematically, we don’t understand it the way we need to understand it. If there is one lesson to understand here it is about getting compounding to work for you.

Any person and I say anyone can become financially successful (beyond her/his wildest imagination) if the person can let compounding work for her/him. There can be a Crorepati in every house of India. Har Ghar Crorepati is then the Mantra. While this is simple, it’s not all that easy. Because…

Part 2 Coming Soon…