“Compound interest is the eighth wonder of the world. He who understands it, earns it….He who doesn’t… pays it” – Albert Einstein
My daughter Sophie, was born in June 2016.
My wife (Mrs Financial Bloke) and I are in the process of putting together a small investment fund for Sophie’s future and using the most powerful investment ‘lever’ available, compounding interest.
Now I want to show you that really small investments compounded and regularly added to can become significant investments if you:
- Have enough years to invest to get the benefit of compounding;
- Invest in quality, well diversified assets and have the discipline to stay invested; and
- Have the discipline to continue adding to the investment regularly.
Simplistically, we will start with a $5,000 initial investment, add $200 per month in the form of a Regular Savings Plan (RSP), increase the RSP annually by 3% and assume a return of say 8% p.a. By my estimates by the time she turns 21 there should be around $150,000 invested.
Now as an example, that’s a lot of money for a 21 year old to help her get started in life.
So, are you or should you, be putting small amounts of money away for your kids, grandkids or maybe even your future self?
Something to think about hey!
Cheers
