If there is one thing that will affect your portfolio more than anything the ‘magic of compound interest’, it is time. This impacts your portfolio from two perspectives – how early you start and how long you hold your investments. Perhaps, we can say – he who comes to investing, must come with time in hand.
Often, people make the mistake of waiting until they have a large amount of cash to invest. Unfortunately, that’s the wrong approach. Getting an early start, with what you have right now allows your portfolio to grow faster via the power of compounding.
If we assume, that we all get into the workforce at the same age and retire at the same age, it becomes clear that the folks who get an early start with investing are able to put more away into their investment portfolio and also allow more time for the power of compounding to impact their portfolio.
So with the N100k gift at age 20 and invested at 8% yield with an annual top-up of N20k:
- If invested immediately, would have grown to N3.27m at age 50.
- If the investment of the gift under the same terms was delayed by 5-years until age 25, it would still grow but to N2.17m. In this case, after backing out additional capital invested (N100k), waiting for five year will cost N1m.