Upfront Investor | The Power of Compound Interest…

Warren Buffett once said of compound interest “My wealth has come from a combination of living in America, some lucky genes, and compound interest.” Starting with only $9,800 in 1955, Buffett is now one of the richest men in the world with a net worth of over $50 Billion. Besides an amazing mind for investing, Buffett attributes the largest component of his wealth strategy to the effects of compound interest. Yet even with this evidence that compound interest is one of the greatest ways to achieve wealth, very few people today understand how investing wisely, taking a long term approach and allowing compounding to take affect can have a huge impact on your personal bottom line when it comes time to retire.

Let’s take a look at an example to show just how powerful compound interest can be. Peter is 21 and decides to invest $3,000 in the share market every year until retirement at 65. Assuming an 8 per cent average return for each of those years, Peter will have $1,156,517 when it comes time to retire. If Peter had waited until he was 27 to start investing he would only have $657,948 for retirement. A 6 year difference in the start time resulted in Peter’s balance being almost halved.
As you can see it doesn’t take a lot of money to start investing and growing your wealth but unfortunately in today’s society many people are caught up in the quick thrills of discretionary purchases like the latest flat screen TV and miss how important it is to plan your purchases. By adopting an approach of delayed gratification, a regular savings plan and long term wealth building you can truly grow a large nest egg in as a little as a few years.
So what do we expect in the market?
Right now is an interesting time to stop and look at where the market is currently trading relative to two important prior peaks; in April 2010 at 5048 points and April 2011 at 5069 points. Over the past five weeks our market has been hovering above 5000 points and at times has also held comfortably above these prior highs. Regular readers may recall that I have a target zone for the market between 5200 and 5400 points and that so far the lower level has been broken by only a few points, which means that until the market indicates otherwise I am still of the opinion it will trade more convincingly into this zone. In the meantime however, we need to be mindful that the market may slide gently back to 5000 points before it has sufficient moment to continue the current rise.

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To your profitable trading,

Dale Gillham
Chief Analyst
Wealth Within

Dale Gillham, ‘one of the country’s most respected analysts’ (Wealth Creator Magazine, Nov/Dec 2004), sought after key note speaker and author of the best selling book ‘How to Beat the Managed Funds by 20%’. Dale has assisted thousands of traders and investors to learn to trade shares and become confident and profitable in their direct share investments. Tired of an industry saturated by quick fix gimmicks and expensive short-courses, Dale co-founded Wealth Within to provide ‘ real education and ongoing personalised support’, as well as independent investment adviceto traders and investors who have become disillusioned by the market for one reason or another. As testament to this, Wealth Within launched Australia’s first and only nationally accredited Diploma and Advanced Diploma of Share Trading and Investment.