No matter where you live, you probably face similar financial issues to people elsewhere in the world. As a society today, most people have to rely on others. For example, we rely on others to get our salaries on time, or that others will grow our retirement fund big enough to support our current living standards in retirement. But unfortunately the current demographic in the western world is not optimal and is particularly challenging for the pension system.

The current generation of retirees probably can’t do much to improve their situation. However, the active generation still has everything at their disposal to guarantee themselves a better and more stable future. To get there they must learn how to invest and use the power of the compounding interest. As Einstein said so many years ago, compounding interest is the 8th wonder of the world.

Let’s go through an example. To make it as realistic as possible, let’s apply a 3% yearly inflation to the numbers below. For example, 1,000€ today is equal in value to 316€ 40 years ago. All numbers below are stated in today’s value, but we used inflation adjusted numbers in the calculation.

Below are 3 options for a person looking to invest/save over a 40 year period:

  1. He/she puts 1,000€ (316€ 40 years ago) on his bank account the first month and adds 100€ (31.6€ 40 years ago) every month.
  2. He/she puts 1,000€ on his bank account the first month. Except compounding it at 10% a year he does not add any money anymore.
  3. The same as in the 1st case, but he/she also compounds it at 10% a year.

In the first case, after 40 years, he/she would have saved 28,908€, 14,302€ in the second and unbelievable 264,557€ in the third.

The difference of a quarter of a million came from very disciplined saving, concurrent compounding and the power of compound interest. If everyone did the same thing during the active years of their careers, they’d have enough capital at their disposal to have one thing less to worry about in their retirement.

Do you want to learn to trade and invest successfully, so that you too could use the benefits of the compound interest? Join me at my April’s workshop in Ljubljana, Slovenia.

ChartingTrades.com is a blog of CT Capital Ltd.

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