Compounding interest - How it will make you a millionaire

Compound interest (or compounding interest) is the interest on a deposit calculated based on both the initial principal and the accumulated interest from previous periods.

 

In a way, compounding interest can help you achieve your financial goals faster as it allows your money to grow more using the time available and also the growth.

To be a millionaire is everyone’s basic retirement goal, it can be achieved easily by some or takes longer by others. But compound interest, the 8th wonder of the world will help and if you can put it to good use, you will definitely benefit from it.

The earlier you start, the earlier compounding can happen and the earlier you can reach your financial goal. Recently, i came across an article published by CNBC which was about how compound interest can make a difference if you start saving and investing your money early. The author came across this chart and it changed his life.

The chart shows two different scenarios:

• You start investing at 19 and contribute $2,000 to your account every year until you reach 27. From 27 to 65, you contribute $0.
• From 19 to 26, you don’t invest anything. You start investing at 27 and contribute $2,000 to your account every year until you turn 65.
  

In the first scenario, you’re only saving and investing for eight years; in the second, you’re saving and investing for 39 years. Still, the person who starts at age 19 would end up with more money in their portfolio in the long run.

Assuming a 10% rate of return, the first person would have $1.02 million by 65, while the second person would have $805,185, a difference of more than $200,000.

As the chart shows, the sooner you can start putting your money to work, the more you’ll benefit from compound interest and the less you’ll have to save to reach your retirement goals. 

For compound interest to work, you cannot just put your money in a savings account, you have to invest it or put it in a vehicle that grows at a substantial rate. Of course, putting your money into these can carry a certain amount of risks and you can mitigate or lessen the risk through many other ways as well like diversification and making sure you have emergency funds available.

The main thing is to start investing early if you aren’t sure of how you like to invest, read up more and decide if you will buy index ETF and DCA or lump sum investment into individual companies. Whatever it is, the earlier you start, the earlier compounding can start.

Hope you like the video that I have prepared, do hit the like button and subscribe to my channel for more content.

Reference article for video content:
https://www.cnbc.com/2019/07/08/self-made-millionaire-david-bach-a-chart-changed-the-way-i-think-about-money.html

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September 2020 Portfolio Updates and Job Updates

"Wake me up when September ends~~~" Green Day sang this song which is one of my favorite songs, though the meaning of the song is not literally about September, it was written by Billie Joe Armstrong about his father, who died from esophageal cancer in September 1982.

Another month has passed and I guess this month gave me a good news about my job. Since my contract will be ending soon, my boss told me that my contract will be extended, it will come with a pay increase though I am not sure of the amount yet considering this period.  

It comes as some sort of relief but also that being converted to a permanent staff is another long journey as I will have another year as a contract worker and conversion usually will not happen so soon. 

I went for about 2 interviews so far but I realized that I am not able to build on any defining traits/experience/projects and it kinda makes me lose out to others. I do understand that for the employers, they are definitely looking for someone who is able to handle the job and do well.

Otherwise, I am just glad to have some sort of update on my contract. Searching for jobs hasn't been smooth, not much interviews as I am rather fresh considering my work experience to be only a year plus. 

On the portfolio side, another 1.1146 units of Vanguard S&P 500 ETF (VOO) was added to my portfolio and 2.5526 units of Vanguard Total World Stock ETF (VT) was added. Recent prices have dropped for both and definitely wish to scoop some up at a lower price however I will wait for the normal RSP buy date which is the 8th of every month.  

I am glad I started on this RSP and I am seeing some slight results from it. The amount that I am buying every month is not huge and so the snowballing effect is not seen as very obvious at the moment. 

RSP Portfolio since additions were done here:

Units of VOO: 2.2105 (Current RSP)
Units of VT: 22.7889 (Current RSP)
Units of Hang Seng Index: 138.6615 (Stopped)
Units of STI ETF: 352 (Stopped)

Dividends received: 

This month was a good month for dividends as $150 was received from Far East Orchard Ltd (O10), 21.14 from Capitaland Retail China Trust and $18.54 from Far East Hospitality Trust bringing the total for the month to $189.68

The year is going to be ending soon in 3 more months. Its been a tough year and recovery will take awhile. I am grateful for my current situation but I think I can still do much more to improve on it. Take care and stay safe.