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 Financial Happenings Blog 
Wednesday, August 23 2006

Investment Markets have been a little bit up and down lately.  And a lot of the commentary in the media has been whether it was time to get out of investment markets for a while, have they now bottomed, and it is the right time to buy back in.

In the long term sharemarkets - both Australian and International - have provided returns of around 11-14% a year on average.  They are respectable returns, so why add extra pressure and expenses assocated with trying to buy and sell investments.

The 'Miracle of Compound Interest' refers to the way that, over time, investment earnings increases as there are investment earnings on investment earnings.  For example, let us assume that I have $1,000 in a bank account earning 10% interest (a little bit unreasonable give current cash earning rates, however it makes the maths easier).  In the first year the $1,000 earns $100 interest.  However, if this $100 is not spend the 10% interest on $1,100 in the second year is $110.  And so on. The key is not to be impatient.  The benefits of compound interest will take some time to show through.  Set up an investment portfolio.  Invest regularly into in.  In time, the investment earnings on investment earnings (compound interest) will help push you towards your financial goals.

 

Posted by: Scott Francis AT 07:46 pm   |  Permalink   |  Email
 
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