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Do you want get rich? Invest long-term

Warren Buffett, one of the richest people in the world, bought his first equities at the age of 11 and continues to buy them even today. At the same time, he says: "I regret that I did not start investing earlier". Buffett's path to wealth is the embodiment of the compound interest principle. Up to 99% of his property was earned after his 50th birthday.

Ján Tonka | Investment academy | 6. November 2019

If he started investing just a few years earlier, his assets could already exceed the sum of $ 100 billion. But don't worry, he will reach this milestone soon. An annual return of 8% of the $ 86 billion asset means a return of nearly $ 7 billion, that is a higher return than what he managed to earn in his first 60 years. From the asset’s appreciation perspective, each year is more valuable to him than the previous one.

The sooner you start, the more you earn

Only long-term investment is a guaranteed recipe for success in financial markets. Therefore, do not unnecessarily delay the decision to start investing. Every year is important. To showcase this principle, we can look at the different paths and outcomes of two investors:

Ms. Smart started to save for her pension regularly and invests 1000 euros per year (less than 3 euros a day) from the age of 25. This represents two coffees a day that she had to temporarily leave out in return for better future.

After ten years, she decided that she had already done enough and that the rest will be taken care of by time and compound interest. Thus, she will no longer put money to her retirement savings account. On retirement, however, she will still have saved approximately 170 030 euros, which combined with the state pension ensures a comfortable retirement.

On the contrary, Mr. Lazy spent during the first 10 years of his working life all the money he earned and saving or investing was not even a part of his personal budget. But after long discussions with Ms. Smart, he also understood the benefits of long-term savings and investment. At the age of 35, he also began investing € 1,000 per year.

Even if he invested 1000 euros per year for the next 30 years, he won’t be able to catch up to Ms. Smart. Despite investing 30,000 euros (which is three times more than the money invested by Ms. Reason), only € 122,346 (nearly € 50,000 less), will be waiting for him for retirement.

To overcome the missed 10 years of investment, he would have to invest up to EUR 1400 a year, or approximately EUR 117 a month, over the next 30 years. To achieve the same result as Ms. Smart does with investment of EUR 10 000, he would have to save and invest up to EUR 42 000.

Who will be the first trillionaire?

Apple won the competition for the first $ 1 trillion company on the US Stock Exchange with Amazon a close second.

However, it does not have to take long to write about the first person whose personal assets exceeded a trillion dollars. Jeff Bezos, the founder of Amazon, whose assets recently exceeded the $ 180 billion mark, is closest to this achievement. It may not seem like it, but given his age (57), he could become quite simply a dollar trillionaire, even in less than 25 years.

He does not even have to rely on Amazon's further sharp growth. He can hand himself a notice and put his feet up as the time and compound interest to do all the work for him.

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If he invests his assets on the stock market for the next 23 years, he will reach the sum of $ 1 trillion before his eightieth’s birthday. In comparison, Warren Buffett is currently 90 years old and has net worth of approximately $ 87 billion.

Probably none of the readers of this blog will become a trillionaire, but you will surely be pleased with achieving your modest financial goals. Whether you are investing to make your retirement better, save money to buy a dream house, children education, or building property, compound interest can also do wonders for you.

Ján Tonka
Ján Tonka
Head of Training
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