Do you want to know how much $5,000 could into after 30 years of growth? Shares could make that into a very large investment indeed.
Shares has grown around 10% per annum over the long-term. That includes all of the volatility and recessions.
If you want to become much wealthier over time then you need to make sure you utilise the power of compound interest. It's hard to understate how powerful compound interest can be for growing your wealth.
Let's say you had $100 you put it into a (magical) bank account that paid you 2% in annual interest. If you didn't touch it, it'd grow into $122 after a decade. If that $100 was instead invested in shares and grew at 10% per year it would become $259. A huge difference.
How much could $5,000 turn into after 30 years using shares?
Using Moneysmart's great compound interest calculator, growing at 10% a year the $5,000 turns into $87,250 after 30 years. No added money. $87,250. Isn't that great?
Most of the money is made in the last decade of the calculated scenario. 10% growth on the last year's balance is much more than 10% of $5,000.
Imagine how much it would grow into if you invested more than just $5,000 in a single lump sum into shares. If you're relatively young you have decades of time to add money to your wealth fund and really grow your money over long periods of time. The more you can add the more it will grow as time goes on.
If you invested that $5,000 and added $100 every month you'd end up with $284,600 after 30 years. That makes it look even better.
Perhaps you're wondering how much you'd need to add a month to shares to get $1 million after 30 years. I'll tell you. $463 a month and the initial $5,000. In normal economic times, I don't think those numbers are out of the question for some households.
What if you don't have that much money? Or you want to get to your goal sooner? You could try to generate stronger returns. If you were still starting with $5,000 and adding $463 a month you'd reach $1 million in 26 years if you made returns of 12.5% a year. That's 4 years shaved off!
How do you make better returns? You invest in the best shares. Investing now could be a good time because of the lower share prices due to the coronavirus.
Four of my current favourite ideas to earn those types of returns over a decade are: Pushpay Holdings Ltd (ASX: PPH), Bubs Australia Ltd (ASX: BUB), MFF Capital Investments Ltd (ASX: MFF) and Magellan Global Trust (ASX: MGG).
