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This simple case study compares Dale’s investment returns under several different scenarios, and emphasizes investment rule number one – invest something!
Investment Rule # 1 - Invest Something!
Dales decides to invest $500 per month. Without any return, his savings after 15 years would total $90,000.
Returning 5% his investment would be worth $133,644
Returning 7% his investment would be worth $158,481
This demonstrates the beauty of compound interest, and investing as you go – small amounts, consistently!
Compound Interest – Earning interest on your interest.
Compound interest is interest on the amount you invest and also on the interest earned. This occurs when an investment is held for the long term and returns are re-invested, hence you are earning interest on your interest.
By automatically saving part of your income each week into a managed fund, you are building wealth without having to do anything.
Chances are you will become used to living on the remaining money and not really notice the small difference in your lifestyle. As you accumulate more capital, you can then sweep money into more sophisticated investments.
Investment Rule #2 – Do something sooner rather than later
Now let’s look at the how much Dale’s investment would be worth when he’s 65, depending on the age at which he started. Invest $500 per month for 15 years at 7%.
Starting at 40, his investment would be worth $407,663 at 65
Starting at 45 his investment would be worth $290,658 at 65
Starting at 50 his investment would be worth $158,481 at 65
After initial 15 year period, assumes investment grows at 7% pa, with no additional monthly investment.
