Investing does not have to be complicated. In fact, the simpler the approach, the better. While many hold the keys to potential wealth, the roadmap to savvy investing remains uncharted for most. Time ticks away, and golden opportunities slip through the fingers of the hesitant. Yet, the truth is, the world of investing is not a labyrinth reserved for the elite—it’s an accessible path to prosperity for those ready to take the first step.
“My wealth has come from a combination of living in America, some lucky genes,
and compound interest.”
-Warren Buffett
KEY POINT#1. Everyone should come to understand why savings and investing programs are important.
Why do people save and invest? Simple. People save and invest for a multitude of reasons, driven by their individual and evolving life goals. By diligently following a disciplined savings and investment strategy, they can ultimately achieve these aspirations.
Here are some examples.
- To make a downpayment on a home.
- To buy a car.
- To pay for college.
- To prepare for retirement.
KEY POINT #2. People who start their savings and investment efforts early more often become successful at creating real wealth.
Wealth creation hinges on two pivotal elements: the earnings from your investments, often referred to as interest or rate of return, and the duration over which you can accumulate these earnings. Both elements are equally crucial. However, while many concentrate solely on the rate of return, the significance of time—the span in which you can earn on your investments—may actually hold greater importance for building long-term wealth.
KEY POINT #3. Compound Interest is an extremely important principle, one that is central to any successful, long term investment program.
So, what is it? The compounding of interest or investment returns is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. In other words, it is the process of generating interest on both principal AND accumulating interest. The longer the timeframe for compounding, the larger the wealth pool becomes. Asset growth becomes exponential.
Here are two illustrations.
- A five-year savings/investment program. Start with $1,000 on day one and put aside an additional $1,000 each year for five years. Savings total of $6,000 for investments. Through compounding of 6 percent per year on the account, the pool will grow to a future value of $7,394.
- Under the same terms ($1,000 annual savings; 6% rate of return) but a longer timeframe, powerful things can happen. At a six percent rate of return, annual savings of $1,000 could grow to $89,890 over thirty years!
The truth is investing does not have to be complicated. In fact, the simpler the approach, the better the result over time. Just keep in mind:
- Setting aside some savings each year is critically important in achieving one’s future financial goals.
- While the rate of return is a key aspect, it’s not the ultimate measure of investment success. A savvy investor would prefer a stable 6 percent return over an uncertain 10 percent
- Time may be the most important factor for long-term wealth creation. The longer a person can save and compound their investment assets, the bigger the wealth pool in the end.
Want to connect? Call 860.567.6437 or email me at kwirtz@unionsavings.com
