Tapping into the most powerful force for successful investing

What do you think is the secret to successful saving and investing?

Hot tips?
Good timing?
Being prepared to take a risk?

It's none of those.

What if we said it was something you probably first learnt about in primary school? Yep, it's good old compound interest.

It's claimed that Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.'

The earlier you can build a good savings habit, the sooner you'll have compound interest working in your favour. We've created the chart below to help show the difference time makes.

Two people, both saving $41,600 before they turn 60. Ataia starts by saving $20 a week when she's 20 years old. Justine, on the other hand, doesn't start saving until she's 40 years old, so she decides to save $40 a week.

What difference does time make? Well, if they both earn 5% p.a. interest, Justine will end up with just over $77,218 in her account at age 60. Ataia almost doubles that, with more than $140,613 in her account by age 60.

But here's the thing: Ataia may have ended up with more in her account, but they're both better off because they've managed to start saving.

It's only too late if you never start.

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The important take home point: regardless of how old you are or how much you can save, the sooner you start saving and investing, the better off you'll be.

Jenny Rolfe