Albert Einstein loved compounding interest. He once said, “He who understands it, earns it; he who doesn’t, pays it”. When one saves and invests, we know the returns are not necessarily guaranteed. While past performance is not indicative of future results, history has proven that over time your investments typically yield a higher return. When it relates to long-term investing, one may feel inclined to invest a nominal amount of money, and anticipate that it will be worth more in, let’s say, 10 or 15 years. In this situation, the outcome might have a positive result. However, let’s assume that the same person put in a nominal amount of money into an investment account either monthly, weekly, or even daily. The long-term results would most likely appear more favorable than one who only invests once and anticipates a higher return than one who invests regularly.
The outcome is such that using historical estimations, that if someone invests $100 a week for 40 years, while the average return is between 7%-9% a year1, the outcome may result in having a 7-figure portfolio. Taking it a step further, let’s assume the age of which one starts this investment regiment is when one typically graduates college at around 22 years old. At this point, they may have gotten their first job whereby they could possibly afford to invest $100 a week. If this concept comes to true, this individual may have more than $1,000,0002 before they hit 65 years old! That means the longer they maintain the discipline of saving and investing may yield very favorable results.
When it comes to the investing element of financial planning, we have to consider looking at strategies in a certain framework. For example, $100 a week may sound like a long of money. However, it is really less than $20 a day, which may equate to the amount spent on coffee, lunches, or even snacks on a daily basis. By no means should anyone refrain from indulging in the occasional latte. However, when implementing a discipline towards accomplishing a certain goal there is a process required. Recognizing this, and following the necessary steps, one may be pleasantly surprised by their results in the future.
Source: www.tradingninvestment.com – Avg. Return of S&P 500 between 1997 and 2017
Source: www.bankrate.com – Assumption: Depositing $100 a week for 40 years with an average annual rate of return of 7.3% compounded annually. For hypothetical purposes only – does not represent a specific investment or investment strategy. Individual results will vary