The Basics of Investments

Time Makes Money

The question most investors ask regarding strategies is “What are the best options?” and  “ How will they work?”.  The best option is to start early in your life and create as regular and disciplined a regime as possible.

Money you invest early in your career will work harder and longer than money you invest later. In fact, a little money invested now may be worth more in your lifetime than a lot of money invested later.

If we use a simple example to illustrate the importance of this point and how lifestyle decisions, to postpone the instigation of financial programmes to meet individual and family needs can seriously effect and impact one’s future quality of life.

Maria and Peter are both successful, single 30 years old professionals. But faced with some options they chose to make different investment decisions.

Maria decides to invest $300 per month for 10 years. She expects to marry within two years and would like to stop full time working at age 40 to enable her to look after her family. Although she keeps her accrued money appropriately invested, will not make any further contributions and at 60 will being to fund her retirement.

Peter, also age 30 decides that before he marries to enjoy to the full his income and bachelorhood, decides to buy a new sports car.   He delays starting  an  investment until he marries and starts a family and therefore  at age 40, he invests $300 per month continually for 25 years to provide his retirement needs. He makes his last contribution at age 64 and 11 months.

Maria invested $36,000 over ten years and retires at 60. Pedro invested $90,000 over 25 years and retires at 65. While their contributions were invested, both enjoyed a 10% net average annual return.

THE QUESTION TO BE ASKED IS WHO RETIRED WITH MORE MONEY?

The answer is, that earlier the start, often out performs, later and more money.

Actually Maria would retire at 60 with an accumulated fund of $348,087USD and Pedro at 65 would have accumulated $308,183USD. 

The lesson to be learned is that the earlier in life you begin, the less you'll need to invest to help reach the necessary amount to meet a strategic need. The longer you wait to invest, the more you'll have to invest to help reach the same goal.

How the process works

When you make a contribution to your selected investment, any increase your Funds gains in a year is a CAG (Compound Annual Growth). The benefit of compounding is that the amount of your return from one year is added to your account. If your account increases in value, you'll have more money invested and working for you.

A Little Goes a Long Way
CAG’s makes it possible for a little money to do a lot of work. Take a look at how small contributions, invested each month and enjoying a CAG of 10 percent (compounded annually) over the years can work for you and help you achieve your personal and family goals.

These are hypothetical examples that do not represent the performance of any actual investment. These illustrations are intended to assist in planning and evaluating investment strategies by showing the effects of  CAGS. The value of an account is dependent on the fluctuating nature of market performance.

An 30 year old investor seeking to retire at 55 with an accumulated fund of $500,000USD, which will be expected to experienced a 10% CAG., would need a $480USD monthly contribution. A 40 year old investor, would require a $1375USD monthly contribution, to achieve the same outcome. A 45 year old $2745USD.

As we have stated before…It is time… above all things which allows the mathematics to perform its magic. 

Next: The Importance of Diversifying your Portfolio