Importance of investing for the future

Posted on August 24, 2022

We all have a different idea of what our future will look like, and in reality, these ideas will change numerous times as we progress through life. Planning for a changing future can therefore become difficult, with plans for now often taking priority over potential future needs. This is no different when considering planning financially for what the future may hold. Be it saving for retirement, a deposit for a property or children’s education, investing is important, if not critical, to ensuring future financial goals can be met. You work hard for your money, make your money also work hard for you.

Compound interest is magic

Well, it’s not, but the impact of it can be. There is an often told anecdote that when Albert Einstein was asked what mankind’s greatest invention was, he responded “compound interest”, continuing to refer to it as “the 8th wonder of the world”. In simple terms, compounding enables you to grow your wealth by reinvesting the returns you make – and earning future returns on your returns. By incessantly re-investing the earnings you receive you can therefore increase the returns you can expect.

Why is this important? Over the short term, the impact can be trivial, however over the longer term the impact of compounding can be staggering. As an example, if two 66 year olds retired today, one having invested just 56p a day from birth, and another having invested the same 56p a day but starting at age 10, the difference in invested capital at 66 would be just over £2,000. However, the variance in returns due to compounding over their investment period would mean the investor starting at birth would retire with roughly £1,000,000 (from a total investment amount of just £13,490) and the investor starting age 10 would retire with approximately half at just over £500,000 (from £11,446 invested) [Source: Bloomberg].

Money makes money. And the money that money makes, makes money”,
Benjamin Franklin.

Similarly, if a third investor started investing 56p a day from birth but stopped at age 10, due to the impact of compounding they would retire with a similar £500,000 investment as the investor who started age 10, despite contributing for 56 years less and only investing a total of £2,044. This is a extreme example of the impact compounding can have over the long term but pertinent nonetheless; starting investing a little now can have a significant bearing on your future financial security.

How can HBFS help?

At HBFS, we offer regular contribution investments from as little as £50 per month, as well as providing advice on lump sum investments. Creating bespoke investment solutions based on attitude to risk and reward, objectives, time horizon & individual preferences, means tailored and regularly reviewed advice for all of our clients. Compounded with the flexibility to stop and restart contributions, increase or decrease amounts and no ‘lock in’ periods preventing access to your investment, it’s never been more straightforward to begin building an investment portfolio and planning for the future. Call us today on 754449 for a free consultation to discuss how we can assist with making your money start working for you.

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