Did you know that when investing, your money is working for you through a simple concept called compounding growth?
Compounding simply means making money on your original investment as well as on the gains made in following years (i.e. growth on growth over time). In short, as your money makes money, so it should make more, a relatively simple concept that, over time, is hugely beneficial.
If you leave your investment for a long period of time, the investment not only grows each year, but grows exponentially. This interest is called compound interest, and is the key to long-term growth and wealth.
SAVING WITHOUT INTEREST
If you saved R1 000 every year for 10 years, and kept your savings under your mattress, your money wouldn’t earn any interest. After 10 years it would be worth:
R1 000 x 10 years = R10 000
SAVING WITH COMPOUND INTEREST
If you had saved it in an investment that earned 10% interest per year, it would be worth more than R17 500, this is because the interest is compounded, causing the investment to grow much faster.
THE POWER OF COMPOUND INTEREST
BUT THERE’S A CATCH
Compound growth is only effective over time. The longer you put off investing, the longer it will take to reach your goal and the more it will cost you. And whilst few of us have the luxury of investing a lump sum, investing smaller amounts regularly over time can be just as effective a way to build wealth, without making too dramatic an impact on your budget.
Unit trusts offer you the flexibility to change your monthly investment as your circumstances change – without you incurring penalties. Old Mutual also offer the option to have your debit order amount automatically increased each year, helping you combat the ravages of inflation.
Think more about investing and make your money work for you.
You can visit www.oldmutual.co.za for more information.