The Power of Compounding Interest
Compound interest is the process of earning interest where the interest can itself earn interest. An example below from JP Morgan Asset Management demonstrates this:
The illustration shows Susan, Bill and Chris all achieving the same annual return on their investment.
Susan invests $5,000 per year between ages 25 to 65
Bill invests $5,000 per year between ages 35 to 65
Chris invests $5,000 per year between ages 25 to 65
Chris has the larger sum of money at age 65 as he has invested the most, but the interesting point to notice is that Susan who has saved for only 10 years has accumulated more wealth than Bill who has saved for 30 years.
This is because Susan started saving 10 years earlier than Bill and the interest she earned over the years compounded and snowballed to the extent where Bill could not catch up with her.
The earlier you start, the less you miss out on the benefits of compound interest!
At TallRock Capital, we will analyse every aspect of your portfolio and through our integrated financial models, we will determine the most appropriate structure to plan for your retirement.
Experience has told us that clients put off savings for retirement due to the following reasons:
I am too old to save for retirement
I am too young to save for retirement
I don’t make enough money to save for retirement
I’d rather spend my money on something else
The stock market isn’t safe
I don’t have time or knowledge
I don’t know where to start
I will think about it later
However don’t forget about Susan, Bill and Chris. The earlier you start, the easier it is - and it is definitely never too late to start!