The 2 Most Powerful Wealth Building Tools
It’s time to talk about 2 of the best kept secrets of the wealthiest people in the world (including Warren Buffet!).
Time and Compound Interest
Consider this:
At age 20, if you invest $20 per week with a 10% p/a return rate in a managed fund earning compound interest, you can have over $900k when you retire at 65.
If you start at age 30, you would need $55 per week.
If you start at age 50, you would need $510 per week.
The End…
Just jokes. Although you have to admit, that’s very powerful information – admittedly, if you’re reading this age 20 it’s more exciting news than if you’re reading it at age 50 BUT now you know that it is 100% possible to achieve incredible financial goals if you know how no matter what your age.
So let’s talk a little bit about the 2nd part of this equation – compound interest. This would be a great time for me to start boring you to tears with a compound interest formula that you have no hope of understanding how it works…wait – that’s what they did in school!
Instead of doing that, let’s try something a little different – I’d like you to open this link which takes you to a fabulous creation of the interweb – the compound interest calculator – it lives on one of my favourite sites moneysmart.gov.au – this little piece of magic will allow you to both DREAM and UNDERSTAND what is needed to achieve that dream (or goal). All you need to do is enter any savings or superannuation you have now, enter how much you think you can invest on a regular basis and when you want to access the funds – you can adjust the regular saving amount or the time period to understand how you can achieve your goal.
Play with it a little and extend the time by 10 years and the amount you can invest regularly as high as you think you can manage and see what happens to the compound interest you earn and how big the pot at the end of the rainbow grows by…it’s incredible (and maybe why compound interest is referred to as the 8th wonder of the world).
Some other things you should know:
1. Bank accounts earn simple interest – the lowest rate of interest will always be on the everyday account – better rates of interest can be earned in ‘saver’ accounts or term deposits. They are lower risk but the amount of interest you can earn is lower than compound interest earning accounts.
2. Managed funds earn compound interest. You can read more about them here. They are higher risk than a savings account as they are investing in the stock market. However, you can choose what risk profile you’d like to have in your managed fund – over the past 100 years the stock market has returned on average 10% per annum – if you compare this to a savings account in June 2021 where you’d be earning 1.1% you can see how startling the difference is.
3. Superannuation invests in Managed Funds – hence the big fuss about contributing to Superannuation particularly for women – when we don’t have the knowledge or confidence to invest ourselves in Managed Funds, Superannuation is a great way to invest. (And also why I was so upset with women who withdrew their ‘small’ amount of super between $20-$50k during COVID to buy unneeded things like cars just because they could and because they simply didn’t understand the power of that small amount over TIME and with COMPOUND INTEREST.)
This is one of those posts to share with ALL the women in your life – it could be life saving information.
It’s also one of those posts where I must stress the General Advice Warning. Information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.
Or, book a chat with me – the work I do with women really precedes financial advice – check out this blog for more info. about what a Money Coach does compared to a financial adviser.
Thanks for sticking with this blog to the end – I know building wealth can seem complicated but hopefully this post has demystified it a little and inspires you to get started with investing in managed funds.