The Power of Compound Returns
“Compound return is the 8th wonder of the world. He who
understands it, earns it. He who doesn’t, pays it”
Albert Einstein wasn’t known for
investing, but he got it spot on with this. Let’s understand the power of
compound returns, why it’s important, and how you can use it.
The concept of return is
simple; take Albert who has $1,000 in his account – If he earns a return rate
of 8%, he earns return of $80 ($1,000 x 8%), over one year.
Now, the idea of compound
returns is pretty simple too, it’s just earning return on
your return, over time. For example, Albert earned $80 of return in
year one; in year 2 Albert earns 8% return on his $1,000, and, 8%
return on the $80 he earned in year one. So in year two Albert earns returns of
$86.40 ($1,080 x 8%), bringing his total balance to $1166.40. A modest
increase, but over time this effect snowballs, and after 40 years of compound
return, Albert’s $1,000 grows to nearly $22,000, that’s 2200%.
Why is this important to you? By
choosing to invest now, you could make compound returns work for you, and help
you reach your financial goals in the future.
If you start investing now, and
patiently let your money enjoy compound return, the returns could be truly life
changing:
– If you’re 25 and choose to
start investing now, say $1,000 a year, until your 65, with a return of 8% p.a.,
you could put a handy $280,000 towards your retirement.
– If you wait until you’re
30 to invest, you’ll put about $186,000 away
– And if you don’t start
investing until you’re 35, you’ll only put $120,000 away.
With Raiz we encourage investors
to start small, contribute often, and commit long-term. For more information on Raiz fees, click here.
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Important Information
The information on this website is general advice only. This means it does not take into account any person’s particular investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this article to fully understand the benefits and risk associated with the product.
A Product Disclosure Statement for Raiz Invest and/or Raiz Invest Super are available on the Raiz Invest website and App. A person must read and consider the Product Disclosure Statement in deciding whether, or not, to acquire and continue to hold interests in the product. The risks of investing in this product are fully set out in the Product Disclosure Statement and include the risks that would ordinarily apply to investing.
The information may be based on assumptions or market conditions which change without notice. This could impact the accuracy of the information.
Under no circumstances is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz Invest or Raiz Invest Super.
Past return performance of the Raiz products should not be relied on for making a decision to invest in a Raiz product and is not a good predictor of future performance.
