Investing 101
INVESTING 101
INVESTING isn’t just for people who already have a lot of money.
Many people who come to us, have heard a whisper about the power of investing and they want to get their head around exactly what it could mean for them.
This short blog is probably going to leave you experiencing two conflicting emotions.
Firstly, we bet you’ll be pretty annoyed no one has let you in on this little secret and secondly, you’ll finish itching to make your money start working for YOU.
We like to keep things simple and we understand each person is on a unique journey.
Whether you’re 25, 35 or 45, it’s never too late to take control of your financial future and realise your goals, whatever they may be.
We aim to arm you with knowledge and confidence to manage your financial future by introducing you to the foundations of investment.
What is investing?
“Money makes money. And the money that makes money, makes money”, Benjamin Franklin.
Basically, investing is where you commit an amount of money or capital towards an asset or investment over a long period of time in order to make a profit. It means making smart decisions about your money and being in it consistently, for the long haul. This is where compound interest (or return) comes into play.
Compound Return vs. Simple Return
Explaining the difference between compound return and simple return will help you understand the investing concept.
Simple interest is where you earn interest only on the initial sum of money. Compound return is where interest that you earn on a sum of money is re-invested so that you earn interest on the initial amount of money, plus interest on the interest. You can see below just how that plays out, with an initial investment of $10,000 at an interest rate of 7%.
Don’t be fooled
The biggest perceived barrier to the 8th wonder of the world is that young people don’t believe they have enough money to begin investing or they think they need to work to save up a decent lump sum to get started. Don’t be fooled – it’s never too early to start and delaying until you believe you have enough money is not always the best approach.
So what do I invest in?
Typically, people choose to invest in property or shares, although there are countless options. It pretty much comes down to what works best for you and what you’re interested in, however, there are advantages and disadvantages to every type of investment.
Let’s do the maths
If you invest $500 per month over 40 years at a conservative 7% interest rate you will finish up with a neat $1.31 million.
Our number one tip?
Invest early. Invest consistently.
If investing is on your radar get in touch with one of our financial advisers and find out what you could achieve.
Benjamin Franklin Left $2,000 To Boston and Philadelphia, 200 Years Later It Became $6.5 Million
Benjamin Franklin provides us with an actual rather than a hypothetical case.
When Franklin died in 1790, he left a gift of $5,000 to each of his two favourite cities, Boston and Philadelphia.
He stipulated that the money was to be invested and could be paid out at two specific dates, the first 100 years and the second 200 years after the date of the gift. After 100 years, each city was allowed to withdraw $500,000 for public works projects.
After 200 years, in 1991, they received the balance—which had compounded to approximately $20 million for each city.
Franklin’s example teaches all of us, in a dramatic way, the power of compounding.
“Money makes money. And the money that money makes, makes money”
