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| Image: desktopnexus.com |
Money, as the Beatles argued, can't buy me love. But though I'm not the type to argue that money makes the world go round, there is no denying that in this material word it can make things happen. That is its charm: I'm not all that interested in money, but I do like what it makes possible. (Incidentally I believe true wealth is the growing of fruit trees.) Which is why I get a bigger kick out of investing than I do out of - gasp! - shopping. Here's why.
The Windfall
A few years ago, I received an unexpected windfall . My grandfather had decided that rather than endowing money to his grandchildren in his will, he would give each of us a fixed amount on his 87th birthday. Of course, each of us saw the windfall in our own way. Some welcomed the extra cash for existing commitments, others used it to supplement their student wages, one took an unforgettable trip... and I was lucky (or boring) enough not to have any urgent need for the money. I asked my grandfather how he would advise that I invest this windfall. He recommended national bonds, which offered an exceptional interest rate of 9.5% per year at the time. Not knowing what else to do, I followed his advice.
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| Image: illuminations.ntcm.org |
The dangerous beauty of compound interest is that it takes a while to show its true potential. After one year I felt a bit discouraged to see that my R10,000 had increased to only R10,950. Where's the fun in that, after all? I hardly felt like the next Warren Buffet.
Feeling somewhat disheartened, I didn't give the investment much thought until it matured after three years. By this time my grandfather had passed away, and reopening that investment statement was quite a poignant experience. He had left me more than a gift of money: he had shared a legacy of mastering it. To my surprise I found that my little windfall had fattened up to almost R13,000 - an increase of near 30% of the initial investment. Given the option to cash out or reinvest, I had no doubts about the next step: I was hooked.
The Winning
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| Image: illuminations.ntcm.org |
Thirsty for more, I reinvested for another two years. This means that I will have parted with the initial amount for five years. The graph on the right shows how by that time the investment will have grown to more than R16,000, increasing its value by more than half. While it is true that this does not account for inflation, it is certainly a whole lot better than what the money would have done in the bank, under the bed or, worst of all, burning a hole in my pocket at the mall. Most importantly, it is massively empowering to think that rather than being the one paying the interest, I am the one receiving it.
The Wobbly Bit
As I mentioned earlier, I really do believe that true wealth means growing fruit trees. Seriously. Fruit trees give food, shade, oxygen, beauty and joy. Thing is, very few travel agents, clothing stores or restaurants accept even the most luscious fruit in exchange for their goods and services. Money does have a sordid side, and it may well be that its days are numbered. Yet in the end there is little more sordid than being disempowered by the lack of money. It simply is more fun to be raking in interest than paying it.
The Word to the Wise
I will not preach. That said, it is extremely inspiring (or sobering, for anyone with debt!) to play around with a compound interest calculator like the one at www.illuminations.ntcm.org. The calculator shows exactly how once-off or repeated investments grow, and provides graphs like the one in this post to drive the message home. (Yes, there is also a credit card interest function for those who are contemplating going to the dark side.) No, I need not preach. But it certainly isn't a bad idea to play around with a compound interest calculator. And then take action.
Honestly, it beats shopping.
