Elbert Einstein

hhh316

I read he once said that the greatest force was ''compound interest''. Investing $100 a month till retirement would turn close to $1000000.

I'm a noob so where do you get this compound interest from if I start saving £100 a month?

Thanks

jon3001

There's no guarantees but one option (offering a reasonable chance) is to invest it in a multi-asset class portfolio containing things like: bonds, domestic stocks (large/small companies), international stocks (large/small companies), commodities and property.

See this book for more details:
Asset Allocation, Roger C. Gibson

adambro

If you simply saved £100 per month over 40 years and managed an average interest rate of 4% you'd manage to end up with around £96k at a cost of £48k, assuming you pay tax at the basic rate and of course that the rate doesn't change. Obviously therefore it is just a rough guide but it would appear that saving £100 per month over 40 years would result in around about the £100k mark.

Now, if you instead choose to invest this in an investment trust of some kind then you'd be very likely to end up with much more. Over such a long period, the stock market will pretty much always out perform a savings account. One of the reasons is that if you continue to invest whilst the stock market is low you'll be picking up more units for your money.

If you can afford to save, invest, or a combination of the two, £100 per month in addition to your pension contributions, then the chances are that you'll be able to retire quite comfortably, assuming of course that you have a good number of years until retirement.

I've yet to properly start my career but as soon as I do I'll be looking to save and invest a reasonably amount each month.

Edit: I note upon reading the OPs comment again that the reference is to $1M rather than $100k. The basic principles however still apply.

jon3001

If you're 45 years from retirement then you'll need a 10% return on your £100/month to reach £1M.
If you're 35 years from retirement then you'll need a 13.5% return on your £100/month to reach £1M.

Obviously these rates aren't obtainable from high street savings accounts. You'd have to take varying amounts of investment risk to have a crack at your target or increase your monthly contribution.

masonic

adambro wrote: »

If you simply saved £100 per month over 40 years and managed an average interest rate of 4% you'd manage to end up with around £96k at a cost of £48k, assuming you pay tax at the basic rate and of course that the rate doesn't change. Obviously therefore it is just a rough guide but it would appear that saving £100 per month over 40 years would result in around about the £100k mark.

Of course, if inflation rose by 4% per year over that timeframe, £100k would only be worth about £21k in today's money.

CLAPTON

actually old albert was wrong about a lot of things...
he didn't include any consideration of inflation
and he didn't accept quantum mechanics (god doesn't play dice)
nor predict global warming or the current financial meltdown

no-one's perfect