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The eighth wonder of the world

Today I would like to illustrate to you something very simple, but very powerful. I have worked on a brilliant illustrator to demonstrate the value of time and compounding interest.

To show the effect consider the following scenario (In both instances a return on investment of 12% was used):

Jack started his career at age 21 and saved R 1 000 p/m from age 21 to age 31 (thus save for 10 years). At age 31 he stopped making any new contributions to his investment but left the money in the investment until age 65. At the age of 65 the value of his investment was R 13 013 276. His total contributions being R 120 000 (R 1000 x 10 years).

John also started his career at the age of 21 but only started saving for retirement at the age of 31. He contributed R 1 000 p/m from age 31 until age 65 (thus save for 34 years). At the age of 65 the value of his investment was R 5 638 510. His total contributions being R 408 000 (R 1000 x 34 years).

At retirement, Jack had more than double the value than what John had. This is even though his total contribution was 3 times less than that of John (R 120 000 vs R 408 000).

The power of compounding interest is critical to long-term wealth creation. It is on of the most valuable asset in the investment world.

You might be kicking yourself right now because you didn’t start investing at the age of 21. That will however not get you any closer to meeting your investment goals. No matter what your current age, the right day to start saving is today.

Feel free to contact us for specialised investment advice.

Heinrich Coomans | CA(SA) | CFP ® is a director at Affluence Group and spesialises in Investments, Personal and Business Insurance. For any questions please contact him at heinrich@afgroup.co.za or 084 586 9509.

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