There are lots of different reasons for people to become interested in the stock market, however, it would seem likely that many want to provide for a comfortable retirement, or so they can enjoy a few extras in life, that beach house would be nice! Others want to grow a pool of savings so that one day they can help their children and grandchildren get a head start in life.
While the compound growth I am about to describe equally applies to retirement funds and saving for that beach house, it’s amazing to think that by putting aside a little each week, by the time your child or grandchild turns 31 years of age that head start I mentioned could be worth $1,034,909!
Consider this, you’ve just become a parent or grandparent. By saving $100 a week, at the time of the child’s first birthday you’ve saved up $5,200. You invest this into the stock market and earn 11% – yes we’ll get to how in a moment. Then on every birthday for the next 29 years you add another $5,200 to the account. All told you will have invested $156,000 on the child’s behalf (that’s 30 x $5,200) and the beauty of compounding the money at 11% per annum will do the rest – in this scenario by providing $878,909.
How do you earn 11% per annum?
It’s certainly the right question to ask and it’s necessary to achieve to compound $100 a week of savings into $1 million within 30 years. While you certainly won’t make it in a bank savings account the equity market can help make it happen. Top quartile fund managers can be a good place to start. Platinum Asset Management Limited (ASX: PTM) which has managed the MLC Platinum Global Fund has in fact achieved 11.3% per annum since inception in June 2004.
Alternatively you can buy a basket of shares to achieve 11%. This of course is more risky if you’re not an experienced investor or being guided by someone who is. However as has been the case in the past, owning high-quality growth stocks such as Ramsay Health Care Limited (ASX: RHC) and CSL Limited (ASX: CSL) will certainly get you there.