Time, discipline and a little luck are all that is needed if you want to make millions investing.
Interest rates are the strongest force in the universe
This is what the German physicist Albert Einstein is believed to have said. For a man who founded the theory of relativity, it is no small thing.
Einstein or not. Interest rates are the main reason why even with relatively modest annual returns you can create a fortune, if you have enough time. Many investors tend to think they need double-digit percentage returns before it matter. But even with modest market return, you can create millions in profit, which eventually grows by several hundred thousand a year.
You do not have to bet with high risk in the attempt to beat the market. If one can, it is good, but studies show that many fail. Even the professionals.
How to do? People have all sorts of reservations. The world can go under. Nobody knows what’s going to happen tomorrow, etc., etc., etc. We have the past history to start from, that is what I will use in this article. Over the past 30 years, the stock index MSCI World has given a return of 390 percent or an average annual return of 5.44%.
MSCI World reflects developments in the stock markets worldwide and is therefore considered one of the safest investments in the stock market. If a sector, a company or a continent falls, all the other sectors, companies and continents weigh up. However, you do not get the huge returns that you can be lucky to get by hand picking companies.
One can invest in MSCI World at low cost, so let’s say the next 30 years go pretty much the same way. Then your annual return will be a minimum of 5 percent after fees.
Lets try calculate the numbers
You have 30 years, a start-up capital of 10,000 and the opportunity to set aside 3,000 per month. During the 30 years, you only increase the payments in line with inflation, let’s say it is 1 percent.
If you do not invest the money after 30 years you will have 1.26 million standing in your account.
If, on the other hand, you invest the money and get an annual return of 5 percent, the interest rate will mean that the wealth will have grown to 2.79 million. In other words, interest income alone amounts to 1.53 million. kr.
In the end, the interest rate is so strong that the interest income from the 29th year to the 30th year is 131,000. If we let the investment run for another 10 years, the wealth will have almost doubled from the 2.79 million to 5.2 million
If you are more willing to take risks, and if you succeed with an annual return of 8 per cent, you will have invested 1.77 million in 40 years. But with interest rates, the wealth will run up to 11 million
And 50 years – e.g. from the age of 25 to 75 – an annual return of 5 percent give a fortune of 9.2 million, while a return of 8 percent will provide 24.7 million.
Are you a super investor who makes 15 percent in return year after year, after 50 years you will have no less than 311 million.