If only I had got into self-development as an 18-year old when I was starting out in my chosen career path. If only I had started investing as an 18-year old.
Possibly one of my biggest financial failures (F**k ups) is not investing early and taking advantage of compound interest. The frustrating thing is that I did start 19 years ago with £500 a month.
What I done with that £500 a month was put it into an Alliance and Leicester ISA. I was even considering putting it into a stocks and shares ISA to get an improved interest rate.
To get my head into stocks and shares I started reading the Financial Times on a Saturday. This lasted 3 weeks as the FT was like a foreign language to me. If I continued to read the FT every Saturday, I would have read it 988 times. With that extra knowledge, I would have been in a much better place financially.
The £500 a month investment lasted 6 months and then I stopped investing and withdrew the £3000. There will have been a little bit of interest to add but not much at all. I didn’t invest in stocks and shares and investing for 6 months is not making the most of compound interest.
With a little bit of knowledge back in the day, I could have achieved 7-8% interest per year with a stocks and shares ISA. This knowledge could have been gained by reading the FT or the Economist. Or even a book on how to invest.
Around the time when I was reading the FT (for 3 weeks), I was also in the self-help section of Waterstones looking for a book on how to invest. Again, I didn’t get the book and the rest is history.
An investment of £500 pcm for 19 years would have made the most of compound interest. With an interest rate of 7%, I would now be sitting on £224,273. £110,273 is money earned from interest (compound interest) and the rest (£114,000) is from contributions. This almost brings a tear to my eye.
Let me sicken myself further and add another 11 years on. This would have meant that I am 48 and have been investing for 30 years.
Investing the £500 for 30 years would have got me £566,764. This is when compound interest has kicked in as £386,764 of that end total is from interest on top of interest (compound interest).
This demonstrates the power of compound interest. If I had fully understood how interest works as an 18-year old, things might have been very different.
What I will do going forward is to make sure I invest long-term so that I can take advantage of this knowledge.
Someone very close to me is a young lad (like I was) who doesn’t invest. Knowing some of his finances, I know he could probably afford to invest £1000 pcm. The difficult thing is convincing him to learn from my mistakes.
Let us imagine I convince him to invest. He is 22 now and is going to invest for 20 years. Same as before he will get an interest of 7% – plenty of funds available that can achieve 7-8% interest per year.
That £1000 pcm will get him £491,945 by the time he is 42. £251,945 of that end total is again from compound interest.
Even without much knowledge, it is important to start investing as early as possible. Hopefully the above examples illustrate the benefits of investing long-term.
Many contractors who I work with now in there 60s, would agree with me as they have no pension and are still working hard now trying to get their affairs in order.