Compound Interest: Step-by-Step Guide to Profit Growth on Your Investment

I’ll walk you through the step-by-step process of growing earnings from your investment and how you may use these ideas and techniques to your benefit to enhance your wealth.

I will also share with you the finest performing unit trust investment companies at the end of this blog as examples (exhibits) that you could consider for your future investment development and growth.

It is not limited to these, but there are others out there, so I encourage you to read and research further to find the suitable investment vehicle that works for you. However, you must first know and understand clearly in your mind what your investment objective is in order to keep track of your objective and not lose sight of it.

“Compound interest is the eighth wonder of the world. He who understands it earns it… he who doesn’t…. well pays it” Albert Einstein

Distinguish between accumulating and investment funds

As you save and contribute or deposit a lump sum, you are building your wealth over a long period of time, usually, years, utilizing your initial cash to get more cash flow and causing it to grow on its own (make cash work for you, and we call it escalating compound interest), which implies that you are profiting on your initial investment and again on the gains (interest or dividends earned).

If you leave the venture (investment) untouched (without pulling back), that is, it has an impact of accumulating large sums of cash in the future.

If you grasp the accumulating funds’ guidelines and their functions, you’ll embrace the most amazing and powerful option that you have in your hands that will enable you to accumulate wealth well after some time and leave a legacy for you and your loved ones.

Investment funds are usually made into low-risk funds through monthly deposits into a good savings bank account that allows an individual to save money and have easy access to the funds (it is on a premium earned basis, so the assets must be effectively open and accessible on interest) and liquid cash (finances available on demand).

It is usually for a short-term goal (not necessarily a year) as well as for the event of a “pleasant surprise” that happens on an unannounced basis, which is part of life, anyway. 

For what reason do we have to save? Thus, we’re saying that when you’re dreaming and creating your future, you do realize that those dreams and ambitions demand cash; the question is, where will that cash come from?

Lotto (gambling) isn’t the appropriate answer, a few of us aren’t fortunate enough that some lost relative leaves us an unexpected inheritance. We need to work, on the off chance that we have won the Lotto (hope and trust that we have put it to great use, wisely).

What are your goals? There are different requirements that you may set aside money for:

• Would you like to claim your own property or vehicle? How much will it cost you, keeping in mind that the larger the vehicle or property, the more expensive and high maintenance, remember necessities vs wants?

• What kind of education do you require for your children, as well as for yourself? What will it cost you, given that proper adequate training is expensive and is the finest investment (gift) you can offer for your children and yourself?

• What kind of a financially secure way of life do you require after retirement, I am sure you would like it to be realistic and not rely on insignificant government handouts or live off your relatives and become a burden.

• You can’t always predict when you’ll need that extra cash, particularly during unanticipated events (sudden events, children becoming ill, significant activity) and Life stages (ages and stages) that occasionally catch us off guard when we’re not looking (or didn’t see it coming), so by setting aside an extra cushion (rainy day account) or emergency fund to soften the blow that “appear” to happen out of nowhere.

• Have you ever wished to take a dream trip to Europe, the United States, Africa, or Asia before you die, and how much will this trip cost (set you back)?

I think you now realize why it is critical to set away money for:

• Your long-term plans for you and your family (loved ones)
• For the style of life that you require for yourself (now and after retirement-we presently leave longer, especially women)
• Unforeseen events – backup stockpile

I would go on a limb and say that our primary goal for being alive is to create a steady, unwavering growth of wealth over a long period of time for you to be able to recognize the enormous levels of profitability as a result of time. 

It is recommended not to cash out your investment while it is in the early development stage, as this will result in less-than-optimal results than expected.

Investing funds with a flat premium vs accumulating funds

Acquiring money, on the other hand, refers to when a premium is added to a certain venture sum, and the premium that has been included also gains extra interest (earning interest on premium) and is generally determined daily, but credited daily, month to month, quarterly, semi-annually, or yearly depending on how the investment is structured, for example, a Call Account or year-fixed investment, on both the principal (initial venture) and the credited premium.

To demonstrate the reserve money with basic interest, consider the following example (a scenario): Assume your grandmother has been putting aside R500,00 on a regular basis for 6 months and has kept her reserve money in a pantyhose under the mattress (don’t laugh, or be amazed, that’s what our African grandmothers did back in the day and they were very comfortable with it). She had accumulated R3000,00 by the end of 6 months hidden under the mattress in her house. 

However, had she taken that cash and opened up a savings account in a bank, she would have profited by being paid a predetermined percent of each Rand/dollar placed into the savings account because the risk of a bank account is minimal, thus the earnings are also low.

Furthermore, banks are not in the business of making money off of investors; they only make money off of credit cards, loans, mortgages, and overdraft facilities.

The advantage that the grandmother has is that the investment account provides her with security (unlike her house, where her money can be stolen, misplaced, or destroyed by fire) and a low assurance premium (paid by the bank). 

Please keep in mind that the actual estimation of the reserve funds will be smaller due to the fact that inflation eats away the value of cash over time. Having said that, give us a chance to show you how to calculate simple interest on reserve funds. 

Initial outlay multiplied by simple interest multiplied by time is the condition to calculate the simple premium:

Allow us to use granny’s example as a comparison, you need to save R3000.00 over a half-year period at a simple investment charge of 6.5 %*(imaginary interest rate, you would be lucky to get more than 1% a year these days), and you’d want to know how much premium you’ll get, right?

P X R X T = R3000,00 X 0,065 X 6/12 = R162.50 in interest

With a half-year period, she would have received R3162.50 with a simple calculation.

Since we now have an understanding of the fundamental basic premium calculation, we now need to understand the mind-boggling accumulating fund calculation. As much as it is important for you to understand the calculation, you don’t have to be a logical number cruncher to work out the premium. Both banks and financial investment institutions can do the estimation for you, so you can inhale a sigh of relief.

Let us look at the accumulated fund formula calculation:

P= I (1+interest/adjusted after some period; monthly; annual; quarterly) months X compound years (to the intensity of)

Fortunately, you don’t have to figure it out yourself; the bank usually does, and it’s very simple. Assume you need to contribute R3,000 once over 12 years, at a rate of 10% per year, and you’ll get R6607,00 at the end of 12 years.

3000(1+0,10/12) (12×12) 144 = R6607,30

The brilliant and wonderful news about implementing this advanced growth option is that it shows that you need to invest for a long time to realize your returns.

For it to operate properly, it is critical to begin investing funds early on, so you may capitalize on time; if you postpone investing, you are deferring your future and that of your loved ones, as well as achieving your financial objectives of maximizing premium revenue.

It makes no difference where you are right now; luckily, you can typically begin to donate little ordinary sums until you can advance to a single large amount, so it is never too late to start. You can start now, Today. 

What is the Rule of 72?

Consider the following investment fund method suggestions

• Make a distinction between what you are putting something away for (long term) and what you are putting something aside for (short term).
• Determine how much money you have to spare.
• Choose appropriate arrangements
• Make it a program.
• Monitor your progress (Celebrate small incremental achievements)

13 Step-by-Step guide for increasing profits on your investment

Need to contribute? First and foremost, you should get your financial house to stay out of trouble. I’d like to believe that we would really like to continue living a very enjoyable life after we reach retirement age.

Preparing for those enjoyable moments, calm, retiring days is a lengthy range voyage (process) that necessitates patience, being smart with your money, labor, and cautiously all-around thought-out strategies (series of choices). 

There is a nugget of wisdom that reads, “The Pyramids of Giza were never built in a single day.” As a result, it necessitates perseverance and knowledge rather than wasting time on shiny objects that promise you the world yet will never assist you in reaching your financial end goals. By the way, true wealth is never amassed overnight.

WARNING: Before considering various and occasionally confusing speculative options, you must first prepare yourself by researching, learning, and understanding the major secrets (strategies) for effective investing and avoid get-rich-quick-schemes and if it is too good to be true, then it probably is.

• “Eat first” = save first before contributing: pay yourself first by ensuring your and your family’s future (emergencies) are taken care of. It suggests that when you obtain your earnings, you should divide it into several portions, such as saving some, spending some, and paying what you owe, giving (in that sequential order).

• Start on time: “The first bird catches the fattest worm,” thus starting early allows you to reap the rewards of compounded interest and development in your endeavors while also allowing you to make mistakes and learn as you go. It is never too late to start; the important thing will be your technique and risky appetite (Do you have a low/protected yield character drive, a medium risk drive, or a high-risk appetite?)

• Consider the risks of your investment (venture): Understand how risk affects the earnings and developmental potential of your investments in order to determine what type of speculator you are. Higher return yields indicate higher risks, so be prepared to lose harder and more noticeably. It is better to choose a comfortable level that you are okay with and that you can handle the emotional (tolerate) and financial costs of (risk picking up or losing). Your risk tolerance should take into account, and maybe to a greater extent, your earnings, family situation, life phases, and age.

• Consider the Big Picture: Before you begin contributing, it is critical to understand your financial situation and how the chosen investment path fits into your lifestyle. You should also consider your debt burden problem, tax situation, ability to support the retirement account, and insurance inclusion.

• Stay away from get-rich-quick schemes: If it seems too good to be true, it probably is; actual wealth is earned over time via long-term investment and perseverance; just look at Warren Buffet.

• Consider the long term (develop a long-term strategy): Make up your mind and stick with the sensible investment you’ve picked for a long time; don’t chop and change frequently when the market isn’t delivering the results you want in a short period of time, such as a year; even the best-performing investments go through good and bad (high and low) times. The new approach may be expensive, and you may miss out on promising earnings (combined dividends) when the market is down. Many businesses only demonstrate true significant development and growth over a period of time, perhaps 5-10 years.

• Try not to put all of your eggs in one basket (diversify your portfolio): You should hold a variety of investments (make sure you have a range of low, medium, and high-risk speculations); this allows you to be cushioned when something goes wrong, for example, if you put your money into shares (equity/stocks), contribute both locally and globally so that if the local market is down you can still profit in the global market.

• Contract with and select a financial advisor/broker you believe in or who resonates with you: Before you donate your hard-earned money, make sure you educate yourself (study up and educate yourself about the financial industry and don’t only rely on your advisor alone). Self-empowerment via learning gives you authority and control, and it also helps you to evaluate the skills of individuals you hire and to understand your own requirements. Ensure that the advice you receive is related, accurate, concrete, and can be verified, and comes from a sincere heart and that legal inquiry is guided by your counsel that aligns with your aims and financial objectives.

• Limit charges: Before signing any strategy or investment, request a breakdown of all organizational costs, broker’s commission, and bonus to understand how much of your investment goes to take care of organization management fees and what amount is truly put in light of the fact that the more you pay in commissions and executive expenses on your investment, the more and longer it takes to get back what you initially invested- return on investment (ROI).

• Past performance is not a predictor (guarantee) of future performance: Like life, investments are just as unpredictable; this doesn’t mean that if a venture has done exceptionally well in the past, it will continue to do so in the future; It is dependent on a large number of factors, such as market performance, the economic climate, financial situation, management committees’ board decision method and viewpoints, tax system, and inflation (as it destroys into your investment growth potential).

• Consider the taxation system: Utilize tax-deductible retirement/bank accounts, as well as educate and grasp the impact of taxes on your investments, and consult with your adviser about altering your investment portfolio to maintain its balance and to meet the challenges of changing events and conditions.

• Protect your benefits/fortunate fund (savings): when you move in your career ladder, don’t be enticed by money as the taxman will be prepared to jump on your well-deserved money throughout the years (end up paying extra and more duties) and you miss out on the effects of rising premium, so safeguard, save, save your reserve funds as much as possible!

• Examine your investment opportunities on a yearly basis: read all announcements with caution, be on top of your game (understanding), keep track of your earnings, and take the necessary action when required to do so.
  

These are the best-performing unit trusts* in 2019 to consider for investment growth prospects

• Old Mutual Gold R 45.8%
• BCI ACPI Global Balanced Feeder A 27.5%
• Rezco Global Flexible A 23.1%
• 1nvest Global Govt Bond Index A 21.8%
• IP Global Momentum Equity A 21.4%
• AF Investments USD 20.8%
• Stonewood BCI Global Equity A 20.4%

*Unit trusts are a form of a collective investment scheme, which pools money from many diverse investors who share the same financial objectives. They are long–term investment vehicles in their nature, most suited to investors who want potential long–term capital growth and tolerate volatile short-term fluctuations in prices, according to https://www.imoney.my/articles/pmb-unit-trust-invest.

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