The beauty of investing over long term is that it allows you to earn interest on your interest – so that while you have to sweat to earn the money you initially invest, from then on your money works on your behalf.
Imagine you invested $10,000 in a fund that provided a return of seven per cent per annum (compounded monthly).
Now, the longer you leave your money untouched, the more powerful the compounding effect becomes.
After 10 years, your original $10,000 would become $20,200. That means your annual interest would be $10,200 – more than your original investment.
After 20 years, you’d have $40,039.
After 30 years, you’d have $80,116.
So you’d earn more money in the last 10 years than in the first 20.
But, what if you don`t have $10,000 to start with?
If you don`t have $10,000 to start with, you can use the benefits of adding money.
Imagine that as well as leaving your money untouched for 30 years, you also added, say, $10 per week. In this case what you can afford is $1000.
That would make the compounding effect even more powerful! Take a look:
Thanks to the power of compounding, you’d earn $34,370 in the third decade compared to $26,612 in the first two decades – that’s +29% more money in half the time.
Of course, if you added more than $10 per week, your financial position would become even stronger.
Here’s what would happen if you added up to $100 per week for 30 years:
As the numbers show, and numbers don`t lie, if you have the discipline to make regular deposits and the patience not to touch your money, you can turn a little into a lot.
If you have a question regarding any investment strategy, or how your money can work for you we will be happy to answer.
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