Compounding interest – watch your savings grow
"Grandpa, please don't buy me any birthday, or Christmas presents, instead invest the money for me".
Assuming an initial investment of $2,000, and Grandpa making regular monthly contributions of $150 with an average return of 5.00% after tax (managed funds, shares etc.), little Sam would have accumulated $67,000 at age 21.
If the monthly contribution was increased by another $50 to $200 a month the accumulated savings at age 21 would be $88,000.
A regular savings plan, because of compounding (e.g. interest on interest) makes a significant difference.
ASIC's Money Smart site has a calculator that shows the outcome of making an initial deposit and then regular set and forget monthly payments. Try out different scenarios based on your situation. [ASIC - Compound Interest Calculator]
