There’s an old Chinese proverb that goes;
“The best time plant a tree was twenty years ago. The second best time is now”
This couldn’t be any more relevant when it comes to investing. When I think of what I could have now thanks to compound returns, I kinda kick myself for not starting way earlier.
Compound returns don’t sound like anything much, but these are basically the best things that can ever happen to an investor. Literally, just your money making more money.
To emphasise the true and majestically awesome power of compound returns, I’ve built a sick calculator (available to all my email subscribers) It’s been made in a Google Sheet (shit I’m good) and shows you how much you could end up with over the years if you start investing now.
It’s been made in a Google Sheet (shit I’m good) and shows you how much you could end up with over the years if you start investing now.
To keep things simple, I’ve assumed you’ll be investing in a couple of ETFs and your yearly return will be 7%. I’ve also assumed you’ll be reinvesting all your dividends.
7% is probably slightly low, but it’s good to be conservative with exercises like this. If you’re a little numbers nerd like me, you can change the rate of the return on the calculator to a higher percentage and see what more you could have.
You’ll probably be shocked to see how much you could have (and kinda mad nobody started investing for you when you were still in nappies)
Become a millionaire! (somewhere in the future)
I’ve had a lot of people say to me “Well there’s no point investing now, I wouldn’t have much to invest!”
This is just plain wrong. Over time, small contributions turn into big amounts like a big, financially successful snowball.
Compound returns really are awesome. I intend to retire early someday (more on this another time) and a hugely important thing for that goal will be my investing and the compound returns I’m getting as my investments get bigger and bigger.
What are some examples?
Let’s take someone who’s young, and doesn’t have anything invested.
Daisy is thinking about investing but doesn’t think it makes any difference if she can’t contribute much.
She could start off pretty light with a $500 lump sum and after that to invest $200 every month (Only $50/week, very doable for someone with spare cash)
If she did this;
In 5 years: $14,000 (Not too shabby!)
In 10 years: $35,000
In 20 years: over $106,000
Even for such a small amount being invested over the years, look how good those returns are!
Here’s another example. Jack is just starting full-time work. He reckons he could invest a $1,000 lump sum now and top that up with $400 a month ($100 a week isn’t toooo much, though it obviously depends on your situation)
Here’s his breakdown:
In 5 years: $30,000
In 10 years: $70,000
In 20 years: $212,000
In 30 years: $496,000
And in 40 years: $1,068,000
Dude has become an actual and literal millionaire.
After 40 years his investments are worth more than a million, but he’s only contributed less than $200k of his own money.
Also, don’t be put off by a number of years it takes to get a huge amount of cash like that. The point of investing is not to get rich quick – this is a slow, awesome buildup of money. It might mean a little bit less to splash around now, but you’ll seriously appreciate it in the long term.
Have a play around
Check out my calculator (just fill out the sign up box below) and have a play around with different amounts. It might be the push you need to get investing!