Power of Compound Returns

Achieve your financial goals by starting early.

Many people do not realise the power of time in wealth creation.  The sooner you start on an investment strategy, the better. An investor who starts early, will  invest less, for more return, than a later starter.  This is due to the power of compounding, which increases your capital the longer you invest, and helps you achieve your financial goals more quickly.

Wealth creation through the power of compounding

Here is an example of the power of compounding:

  • Imagine that two people have $2,000 per annum to invest. 
  • The Early Starter invests $2,000 each year for only years 1-10 (invests a total of $20,000 of own funds).
  • The Late Starter waits 10 years, then invests $2,000 each year for 20 years (invests a total of $40,000 i.e. twice as much).
  • Assume the invested amounts have 6.5% per annum return after tax; inflation is 3% per annum.
  • The chart shows nominal and Net Present Value (NPV) results after 30 years. 
  • You can see that the Early Starter (blue) has more wealth, even though he has contributed only half as much as the Late Starter (red).

Effect of Time on Compounding Return

Starting early will fast-track your long term financial goals, and with the incredible power of compound returns for a long term investment (eg superannuation) you invest less for greater wealth.

Contact us today to find out how we can help you with a wealth creation strategy. There's no obligation or cost for the first meeting, and the sooner you start, the more you will earn.

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