Saxo Group
Procrastination is your enemy – Time is your friend
Did you ever notice that you didn’t learn how to drive a car until you actually attempted to drive a car and that you didn’t learn another language until you started the process of learning another language? It takes less time to learn to drive a car than it does to learn another language, but in both cases, you get better and better over time as you put forth the effort to make improvements. Someone who has studied another language for five years might be perfectly fluent, but someone who has studied for decades will have an even better understanding of the subtle nuances and obscure vocabulary of that language.
Investing works the same way
It’s pretty simple, but the earlier you begin investing, the earlier you’ll start to grow your wealth. The more time you spend investing and actually being invested the more likely it is you’ll have the positive wealth growing outcomes you desire.
The power of compounding
The more money you have the more your investment will grow. The more time you have being invested the more your investment will grow. This is compounding. How does it work?
The more money you have – compounding part one
Let’s say you have an investment that earns a five percent return over the course of one year. If you invest $1.00 you will earn $0.05, but if you invest $10,000 you will earn $500. Both investments earned five percent, but $500 is considerably more than $0.05.
The more time you have – compounding part two
After the first year your $10,000 grew to $10,500. The second year this will grow by $525 to $11,025, a growth increase of $25. By year five your investment will grow by $607.75. By year ten your investment will grow by $775.66. By year twenty it will grow by $1,263.48. Each year your wealth is growing by 5%, but the dollar amounts are larger over time.
See mathematical aside*.
Warren Buffett
Warren Buffett, the “Oracle of Omaha” is the chairman and CEO of Berkshire Hathaway and is widely considered one of the best investors of all time. Take a look at the chart of his wealth over time.
A couple of things are striking. One, he has a tremendous amount of wealth, so it’s no wonder he is considered such a good investor. Two, he started very young. At the age of 14 he had $5000 in wealth. Many people could have done the same thing, but didn’t. They waited. If he would have waited to start until he was 30 years old it would have cost him around $50 billion. $50 BILLION! Start investing as soon as you possibly can.
Overly simple
The growth and compounding example in this article is overly simple to make a point. Time and compounding are your friend. In reality, investments rarely go straight up year after year. You will see this if you look at Warren Buffett’s wealth chart; there have been times when his wealth has gone down considerably. There are ways to diversify and reduce the ups and downs in your wealth.
Mathematical aside*
Growth at 5%
Growth = Beginning Wealth * 0.05
Ending Wealth = Beginning Wealth + Growth
Year | Beginning Wealth | Growth | Ending Wealth |
1 | 10,000.00 | 500.00 | 10,500.00 |
2 | 10,500.00 | 525.00 | 11,025.00 |
3 | 11,025.00 | 551.25 | 11,576.25 |
4 | 11,576.25 | 578.81 | 12,155.06 |
5 | 12,155.06 | 607.75 | 12,762.82 |
10 | 16,288.95 | 775.66 | 17,064.61 |
20 | 26,532.98 | 1,263.48 | 27,796.46 |
40 | 70,399.89 | 3,352.38 | 73,752.27 |
*We work hard to make these articles as approachable and math-free as possible. At the same time, if a little math makes the article easier to understand, we’ll go ahead and do that too.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
