Investing is one of the best things you can do for your long-term financial position.
If you're reading this article you're probably already on board with the idea of investing. But what about your friends? Do they know how good compound interest is?
A rave review for compound interest
Supposedly Albert Einstein, one of the smartest people to ever live, said: "Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't pays it."
Money in the bank earns interest. It's the interest that earns interest which really gets the financial snowball rolling.
However, whilst interest from the bank isn't bad, you can get much stronger compounding returns from shares like Aussie shares within the ASX 200 (ASX: XJO).
Shares have been great
Vanguard has a great chart you can play around with. Between 1 January 1980 and 31 December 2019 Australian shares returned an average of 11.2% per annum, which would have turned $10,000 into almost $700,000 with no additional money added. Isn't that amazing?
The most common number to use when talking about historical investment returns is that shares have returned around 10% per annum over the long-term, although in the 2010s US shares actually returned an average of 16.4%, turning $10,000 into $45,600 in just one decade.
The younger that you or your friends are the longer you have to build up an impressive portfolio and the less you have to contribute.
A better version of you
Let's imagine two different versions of you, in both scenarios shares return an average of 10% a year. The 25-year-old version of you decides to start investing at a relatively young age to reach $1 million by 65, it takes $507 a month of investing (not including taxes). Don't forget that you're contributing towards your retirement with your superannuation – it will be a big part of your progress!
In the other scenario, 55-year-old you hasn't been building for retirement at all and you only have 10 years to get to your required $1 million for retirement, starting from $0. How much do you think you'd need to invest a month? $1,500 a month? $2,500 a month? $5,000 a month? You'd need to invest around $5,250 a month to get there.
That is a huge difference. If that doesn't get you, your friends or anyone interested in investing then I'm not sure what else could demonstrate the power of investing more and why you should be interested.
