Twenty20 cricket is more popular than Test matches, mainly because a Test match takes 5 days to complete, whereas a T20 game takes only three and a half hours to complete. The new generation wants instant entertainment, and that is why T20 (or 20:20) scores more than the Test format.
If you like the 20:20 cricket format, it is easy to make money through investments. Let us discuss it in detail today.
20:20 Investing means starting the journey towards financial freedom. This means creating a system so you don’t have to worry about money for the rest of your life. It also means creating an additional source of income so that we are not overly dependent on our primary income.
20:20 What is investing?
20:20 means investing 20 percent of your income for a period of 20 years. This strategy will work for everyone, because the investable amount is expressed as a percentage of income rather than a specific amount. Let me explain it with examples.
If your monthly income is ₹1 lakh. The 20:20 rule says that you have to invest 20 per cent i.e. Rs 20,000 per month for a period of 20 years. Assuming 12 percent annual returns, your portfolio will grow to ₹2 crore in 20 years.
This capital of ₹2 crore is enough to give you a monthly income of ₹1 lakh throughout your life. Even if you withdraw for 40 years, your final portfolio value will never reach zero, assuming an annual return of 12 percent.
This ratio works when your salary is ₹10,000/month or ₹1 crore/month, because your monthly expenses are always a fraction of your income. A person earning ₹10,000/month will always have lower expenses than a person earning ₹1 lakh/month. Therefore, a corpus built over 20 years is perfect for your income bracket.
Now let’s talk about some changes to deal with increasing expenses. We all know that inflation poses a threat to our purchasing power. Every year we suffer a loss of about 5 percent on our savings. The solution is to increase your monthly contribution by at least 10 percent. This matches well with your annual salary increase.
The revised numbers come out as per the picture below. A monthly SIP of ₹20,000 per month, compounded by 10 per cent per annum, will create a corpus of ₹3.98 crore in 20 years, assuming 12 per cent annual returns.
Let us assume that our expenses also increase every year, starting with a monthly withdrawal of ₹1 lakh. Even if we increase our monthly withdrawals by 10 percent every year, assuming 12 percent annual returns, our capital will never run out in 40 years.
The ratio of 20:20 is so magical that no other combination gives similar results. You can try investing 30 percent for 10 years or 10 percent for 30 years, but the results will not motivate you to take action.
This also means that if you are 25 and starting a lucrative career, this is the best time to plan for your retirement 20 years from now. By age 45, you will have created a system that can generate monthly income for the rest of your life.
It’s just that feeling of financial freedom, because you can have control over your time. The option to continue your job or follow your non-profit passion is at your disposal, as the funding part is taken care of automatically.
All you have to do is invest 20 percent of your income in an instrument that gives more than 12 percent returns annually. When your salary increases every year, practice increasing your SIP contributions.
Happy retirement!
The author is a SEBI Registered Investment Advisor (INA000021757), SEBI Registered Research Analyst (INH000025054), and author of ‘How to Join the Top 1% Option Traders Club’.
Disclaimer: Investing in securities markets is subject to market risks, including possible loss of principal. Past performance does not guarantee future results. The information provided is for educational purposes only and should not be considered financial advice. Investors should read all relevant documents carefully and consult a certified advisor before investing. The registration granted by SEBI and enrollment with RASB/BSE and certification from NISM does not in any way guarantee the performance of the intermediary or provide any assurance of returns to investors. Investors are requested to consider all risk factors before actually trading in stocks or derivatives.
The opinions expressed in this article are those of the author and do not necessarily reflect the opinions or views of The Week.