Compound interest is interest paid on the initial principal as well as the accumulated interest on money you have invested. Here is a brief example highlighting the power of investing just $2.74 a day ($1,000 a year) for a new born baby.
Time passes quickly – recently we found ourselves celebrating the 21st birthday of our youngest child. It only seemed such a short time ago we had three children under four – now they are ages 21, 23 and 24.
Yes, it’s a great concept but, unfortunately, like most people, I never “got around” to starting. However, being one who likes to ponder on what might have been, I did some calculations to find out
- The eldest, now aged 24, would have $164,000
- The second would have $122,000
- The youngest who just turned 21, would have $89,000
Because the youngest is four years younger than the eldest, her theoretical portfolio would have been worth about half as much as his, because the length of time of her investment would have been four years shorter.
It encouraged me to do more calculations. If we made no more contributions to the eldest son’s $164,000 portfolio, it would grow to $8.8 million at age 64 if the investment could average 10% per annum.
That’s a return of $8.8 million for a total investment of $24,000 (24 x $1,000).
Now think about someone who is reading this, who is aged 24, and becomes sold on the idea of having a portfolio worth $8.8 million in 40 years’ time. Because they are starting from scratch they have to invest $1,380 a month ($16,560 a year) to reach their target of $8.8 million.
Yes, the person who put away $1,000 a year from birth and then stopped at age 24 outlays only $24,000 for a return of $8.8 million. The one who delays the program and then starts at 24 has to find a staggering $662,400 to end up in the same place. This is the cost of delay.
Interested? Call us today on (07) 5437 8888 for more information on setting up an investment.
Stuart Long (Associate Adviser)