You may have heard this on many personal finance forums: It is hard to reach a net worth of Rs. one crore. After that, things become easier. In my experience, this is not a universal truth. Going from Rs. 10K to 20K networth and going from Rs. 1 Crore to 2 Crore could have similar ease or hardship. Let us consider the influencing factors.
Sequence of returns risk: I could have hit Rs. one crore after, say, 7-10 years of investing (this duration will depend on the amount we put in, our asset allocation, and market conditions). The next one Crore may take one year or 15 years, depending on market conditions.
But will that one crore milestone not make me that much more experienced? Well, it all depends on the experience. If we have gone through years of a bull market, we might be rattled by a sustained bear market. Or it could be the other way around. If reaching one crore were peppered with several poor-return years, we might learn equanimity and say “this too shall pass” during bumper years.
Remember that long-term investing in equity comes with no guarantees of success!
Capital invested: Most investors do not recognise the importance of capital invested. The amount we put in each year and the rate at which our investment grows are crucial to growing wealth.
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The best way to accelerate wealth accumulation is to rapidly increase capital invested year on year without debt. This is not always possible. Due to a change in personal or professional circumstances, investment can dip significantly, and net worth growth will slow.
Change in lifestyle: Many people declare that they “deserve” finer things in life once their salaries or net worth grow. If the rate of spending suddenly spikes, wealth accumulation will slow down again. So let us rephrase the statement made above.
The best way to accelarate wealth accumulation is to rapidly increase capital invested year on year without debt and by keeping expenses in check. If this is in place, we will have to rely on timing luck (aka sequence of returns risk)
So nothing gets easier after one Crore. The “After one crore things become easier” refrain is similar to “Don’t worry, after 2-3 years parenting becomes easier”. No, it does not.