Sunday, June 8, 2008

Key Concepts of Investing

The key concepts of personal investments are:

(1) Start saving as soon as possible to receive the most benefit from compound interest. Compound interest is most powerful when there is a long time horizon. If you plan to retire at age 65, then if you begin saving for your retirement at age 25 you will have 40 years to benefit from compounding. If you wait until you are 40 years old to begin saving for your retirement, you will only have 25 years of compounding before retirement.

(2) Higher rates of return have a significant impact on the future value of investments. Small differences in rates of return can make a big difference when you are investing for a long period of time. If you are willing to accept higher risk or sacrifice liquidity, you might consider investments with a higher potential rate of return as compensation.

1 comment:

  1. It’s nice this issue is touched upon, to my mind it'snot very wise to rely on governmental pension after retirement. If you put money onto a saving account, thus you get alternative plan that will provide growth for your finances. Even if you are pressed on means right now, you can always turn to cash lenders as a temporary means, but secure your future.