Inspired Finance: The power of small numbers

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Investment and saving are not a privilege of the wealthy but rather a necessity for everyone. The terms investment and saving can be interchanged but for our purposes we will consider saving as accumulating money for specific goal. The goal may be a holiday, deposit on a house or car or for the proverbial “rainy day”. Investment, on the other hand, entails some form of formality or contract over a period of time and invariably involves the purchase of an asset that will go up in value and can be sold at a profit sometime in the future.

We all aspire to retire on day, unfortunately, very few people ever have sufficient wealth to fully retire. The sooner one can start making investments the more likely that retiring will be affordable. Three of the most important aspects of investment are: 

1) consistent investing

2) the effect of compounding returns

3) time

A misconception is that you need a lot of money to invest. The minimum required to make a meaningful long term investment is R100-00 per month, or a little more than R3-30 per day. So if you forgo that cup of coffee, piece of cake or slab of chocolate each day, not only will you  possibly lose a little weight but have sufficient to invest!

I have headed this article “The Power of Small Numbers” in order to show that by investing a little each month and allowing the returns to compound over a number of years one will be able to build a substantial investment portfolio. I mentioned investing R100-00 per month as I am sure that in some way most people earning a salary can afford that amount. The reality is if one contracts to invest R100-00 per month into an equity unit trust for ten years, at the end of ten years the investment will have grown to approximately R25906-00. If we extend the investment period to twenty years the investment will have grown to an amazing R130116-00. If you are fortunate enough to invest not R100-00 per month but can give up one coffee and a bar of chocolate each day and invest R150-00 per month, or R5-00 per day, the older, slimmer and wealthier you will have an investment worth R38860-00 after ten years and an incredible R195174-00 after twenty years. I have not used any magical returns but the long term average of a selection of equity unit trusts available to anybody wanting to invest. Needless to say the more one is able to commit to investing on a monthly basis the more the investment will be worth in the future.