The most valuable thing you never learned in school.

I hated maths in school – not because i wasn’t any good at it, but because 99% of the time i failed to see the practical application of anything i was learning in the real word (for my personal journey anyway- i’m sure the physicists out there would disagree)

Even throughout my career in businesses operations, the most intense analysis i performed consisted of what is essentially basic arithmetic and ratio analysis. Not once have i used a quadratic equation, algebra, calculus, or geometry!

All that said, i do have one regret. Perhaps i wasn’t paying enough attention, or perhaps my teacher just didn’t engage me in the right way…
whatever the reason, i wish i could go back in time, march into my year 10 maths class, shake myself and say ‘Saul, listen up – in about 2 minutes time, Mrs Jones is going to write something on that blackboard that will change your life forever. Learn it and apply it, start now, and you will be a wealthy man’. Well, as it turns out i didn’t get a visit from my future self in year 10, and it took until my mid 20’s to truly discover the importance of this simple concept, but fortunately thats still early enough for it to change my life… I’m talking about Compound Interest.

Let me give you an example….

If i was fortunate enough as a 15 y/o in 1999 to receive a visit from my future self, and he told me to invest $400.00 in an ASX index fund, increase my yearly investment amount by $100.00 each year and just pretend like the money didn’t exist, 18 years later my wealth today would look something like this….

$52,786

Of that sum, i would have chipped in $23,600 out of my own pocket.

Seems ok right. Might buy me something cool, could be an epic 2-year holiday, or it might be a deposit for a house. Or… because at this point my investment instalments are only costing me $2200.00 per year, i might just decide to keep up the routine for another 18 years…

In 2035, as a 51 y/o my yearly investment routine has ‘cost’ me $81,400, but the good news is that now my investment looks something like this…

$380,762

Wow. Now we’re talking. That’ll pay the balance of the mortgage, cover my daughters wedding, put all 3 kids through uni, take the wife on an extended holiday, and buy a new car….. or, since my investment instalments are only costing me $4300.00 per year i could just keep up the routine till retirement at age 65.

Since i don’t miss it, i just keep contributing a small % of my wage to my (not so little anymore) nest egg until i’m 65. In 2049 i hit retirement age and my rainy day money is worth…

$1,403,241

Now to be clear, this is not my net worth at this point. This doesn’t include my superannuation which has been compounding away in a similar fashion but getting much larger yearly contributions, (circa 10% of my before tax wage) or the other assets that i have acquired, no, this is just the result of my rainy day money compounding away at the long term stock market average return of 9% p.a – and i have built this wealth by contributing only $147,900 of my ‘hard earned’ capital.

Heres is what compound interest looks like.

*Contributions made at beginning of each year. Does not consider the effect of taxation or brokerage.

Now, just to make things really interesting, lets pretend that it wasn’t my future self who bestowed upon me the wisdom of compound interest… It was my Great Aunt Ethyl, who also happened to leave me $10,000 in her will in order to kick me off on my investing journey. My total investment contribution, interest, and total investment value at the same 3 age points would look like this.

Year	Age	Actual Capital Contribued	Investment Returns	Total Value
2,017	33	$34,700	$69,503	$104,203
2,035	51	$91,400	$531,901	$623,301
2,049	65	$157,900	$2,055,839	$2,213,739

So my $10,000 kick starter has helped boost my investment by an extra $810,498 by the time i hit retirement. Thanks Aunty Ethyl!

Compound Interest truly is just about the closest thing there is to magic, and if there is one mathematical concept i’d encourage anyone i care about to embrace, this would be it. Start early, contribute consistently, and let time do its thing.

Happy Investing.

For the full workings, please see below.
If you have a future financial goal, compounding investment returns can help you get there. Be sure to discuss the best approach for your unique personal circumstances and risk tolerance with a licensed financial planner.

Annual Investment Returns	9%
Year	Age	Start Balance	Yearly Investment	Investment Return	Closing Balance
1999	15	$0	$400	$36	$436
2000	16	$436	$500	$84	$1,020
2001	17	$1,020	$600	$146	$1,766
2002	18	$1,766	$700	$222	$2,688
2003	19	$2,688	$800	$314	$3,802
2004	20	$3,802	$900	$423	$5,125
2005	21	$5,125	$1,000	$551	$6,676
2006	22	$6,676	$1,100	$700	$8,476
2007	23	$8,476	$1,200	$871	$10,547
2008	24	$10,547	$1,300	$1,066	$12,913
2009	25	$12,913	$1,400	$1,288	$15,602
2010	26	$15,602	$1,500	$1,539	$18,641
2011	27	$18,641	$1,600	$1,822	$22,062
2012	28	$22,062	$1,700	$2,139	$25,901
2013	29	$25,901	$1,800	$2,493	$30,194
2014	30	$30,194	$1,900	$2,888	$34,982
2015	31	$34,982	$2,000	$3,328	$40,311
2016	32	$40,311	$2,100	$3,817	$46,228
2017	33	$46,228	$2,200	$4,359	$52,786
2018	34	$52,786	$2,300	$4,958	$60,044
2019	35	$60,044	$2,400	$5,620	$68,064
2020	36	$68,064	$2,500	$6,351	$76,915
2021	37	$76,915	$2,600	$7,156	$86,671
2022	38	$86,671	$2,700	$8,043	$97,415
2023	39	$97,415	$2,800	$9,019	$109,234
2024	40	$109,234	$2,900	$10,092	$122,226
2025	41	$122,226	$3,000	$11,270	$136,496
2026	42	$136,496	$3,100	$12,564	$152,160
2027	43	$152,160	$3,200	$13,982	$169,343
2028	44	$169,343	$3,300	$15,538	$188,180
2029	45	$188,180	$3,400	$17,242	$208,823
2030	46	$208,823	$3,500	$19,109	$231,432
2031	47	$231,432	$3,600	$21,153	$256,184
2032	48	$256,184	$3,700	$23,390	$283,274
2033	49	$283,274	$3,800	$25,837	$312,911
2034	50	$312,911	$3,900	$28,513	$345,324
2035	51	$345,324	$4,000	$31,439	$380,763
2036	52	$380,763	$4,100	$34,638	$419,500
2037	53	$419,500	$4,200	$38,133	$461,833
2038	54	$461,833	$4,300	$41,952	$508,085
2039	55	$508,085	$4,400	$46,124	$558,609
2040	56	$558,609	$4,500	$50,680	$613,789
2041	57	$613,789	$4,600	$55,655	$674,044
2042	58	$674,044	$4,700	$61,087	$739,831
2043	59	$739,831	$4,800	$67,017	$811,648
2044	60	$811,648	$4,900	$73,489	$890,037
2045	61	$890,037	$5,000	$80,553	$975,590
2046	62	$975,590	$5,100	$88,262	$1,068,953
2047	63	$1,068,953	$5,200	$96,674	$1,170,826
2048	64	$1,170,826	$5,300	$105,851	$1,281,978
2049	65	$1,281,978	$5,400	$115,864	$1,403,242