Connect with us

Business

The magic of compounding interest

Legacy Phuket Gazette

Published 

 on 

The magic of compounding interest | The Thaiger

PHUKET: This column has previously discussed compounding interest and the magic it can work, and it is the main reason why it is so important to start saving early in life rather than later.

Assuming a fixed amount is desired by a certain retirement age – which is not actually recommended financial planning, but serves for demonstration purposes – this figure is achievable with a low rate of return. This means assets can be used with less risk or variability in returns, and therefore increases the probability the goal will actually be met.

The following numbers are often used with clients to show the principle, but remember, it is better to start with what can be saved and work forward than to start at the final goal and committing to a plan that cannot be afforded. Otherwise, it will be abandoned midstream and a potential mistake may be made that could have a big impact. Let’s say, by the age of 60, a retirement pot of a million bucks, pesos, or whatever currency, is the savings goal.

If saving commences at 25 years old, even with the low compound rate of return of 2% per annum, only about 20,000 per annum needs to be saved. That seems doable, however, if saving starts at 45 years old, that number grows to almost 58,000. But what if a good return could be earned at, say, 8% per annum over the period? This would actually make the difference even bigger. Beginning at 25 years old, only about 5,000 would need to be stashed away; but starting at 45 years old, annual contributions of about 38,000 would be needed.

Another way to look at it is to assume that about 1,000 per month could be saved, then determine at what age saving would need to begin to reach the 1-million-mark at age 60. With a 2% long-term compounding rate, saving would need to start at 10 years old. Don’t confuse today’s low rates with the average over a long time frame such as 20+ years. Even when looking back and including the recent low-rate environment which has persisted longer than any other in the last century, an averaged compounding rate much higher than 2% would have been earned with strictly fixed interest investments.

With a 6% annual compounded return, 1 million could be put away by the age of 60 by saving a mere 1,000 every month starting at age 29. At 8% per annum, saving could wait until 33 years old, but if saving was put off until 39, a return of 12% per annum would be needed to hit the million mark at 60. It is extremely difficult to average 12% over such a long period and not realistic for most people, regardless of their risk tolerance.

One million is not necessarily the magic number, nor is 60 years old the right age for everyone to retire. Hopefully what is gained from this article is an understanding of how much more can be done with less monthly savings, if the magic of compounding is given plenty of time to do its thing. Most people think successful investing is about finding high returns, but it is more about planning for the long term and using lower-risk investments in combination with compounding effects.

David Mayes MBA lives in Phuket and provides wealth management services to expatriates throughout South East Asia, focusing on UK pension transfers. He can be reached at 085-335 8573 or david.m@-faramond.com. Faramond UK is regulated by the FCA and provides advice on taxation and pensions.

— David Mayes

Keep in contact with The Thaiger by following our Facebook page.

Never miss out on future posts by following The Thaiger.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

Business

Governments & old media versus social media – who will win? | VIDEO

The Thaiger

Published

on

Governments & old media versus social media – who will win? | VIDEO | The Thaiger

We look at the recent changes made by the Australian and Indian governments to except control over the world’s biggest social media platforms. India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social. There is now an open battle between the rise of social media platforms and the governments and ‘old’ media that have been able to maintain a certain level of control over the ‘message’ for the last century. Who will win?

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told. The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

Keep in contact with The Thaiger by following our Facebook page.

Never miss out on future posts by following The Thaiger.

Continue Reading

Business

The social media giants in battle with ‘old’ media and world governments | VIDEO

The Thaiger

Published

on

The social media giants in battle with ‘old’ media and world governments | VIDEO | The Thaiger

“The rules signal greater willingness by countries around the world to rein in big tech firms such as Google, Facebook and Twitter that the governments fear have become too powerful with little accountability.”

India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social.

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The companies are also being made to publish a compliance report each month with details about how many complaints they’ve received and the action they took.

They’ll also be required to remove ‘some’ types of content including “full or partial nudity,” any “sexual act” or “impersonations including morphed images”

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told.

The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

Keep in contact with The Thaiger by following our Facebook page.

Never miss out on future posts by following The Thaiger.

Continue Reading

Business

Turbulence ahead for Thailand’s aviation industry | VIDEO

The Thaiger

Published

on

Turbulence ahead for Thailand’s aviation industry | VIDEO | The Thaiger

When the airlines, in particular, were asking the government to put their hands in their pockets for some relief funding in August last year, it was genuinely thought that international tourists would be coming back for the high season in December and January. At the very least local tourists and expats would head back to the skies over the traditional holiday break. And surely the Chinese would be back for Chinese New Year?

As we know now, none of that happened. A resurge in cases started just south of Bangkok on December 20 last year, just before Christmas, kicking off another round of restrictions, pretty much killing off any possibility of a high season ‘bump’ for the tourist industry. Airlines slashed flights from their schedule, and hotels, which had dusted off their reception desks for the surge of tourists, shut their doors again.

Domestically, the hotel business saw 6 million room nights in the government’s latest stimulus campaign fully redeemed. But the air ticket quota of 2 million seats still has over 1.3 million seats unused. Local tourists mostly skipped flights and opted for destinations within driving distance of their homes.

As for international tourism… well that still seems months or years away, even now.

Keep in contact with The Thaiger by following our Facebook page.

Never miss out on future posts by following The Thaiger.

Continue Reading
Phuket’s nightlife. Yes, bars and clubs are still open | VIDEO | The Thaiger
Tourism12 hours ago

Phuket’s nightlife. Yes, bars and clubs are still open | VIDEO

Thailand News Today | Covid passport talks, Thai Airways heads to court | March 2 | The Thaiger
Phuket1 day ago

Thailand News Today | Covid passport talks, Thai Airways heads to court | March 2

Phuket Thai food treats you need to try | VIDEO | The Thaiger
Tourism1 week ago

Phuket Thai food treats you need to try | VIDEO

Thailand News Today | Bars, pubs and restaurants ‘sort of’ back to normal | Feb 23 | The Thaiger
Thailand1 week ago

Thailand News Today | Bars, pubs and restaurants ‘sort of’ back to normal | Feb 23

In search of Cat & Dog Cafés in Phuket Town | VIDEO | The Thaiger
Tourism1 week ago

In search of Cat & Dog Cafés in Phuket Town | VIDEO

Thailand News Today | Gambling crackdown, Seafood market to reopen, Vlogger challenge | Jan 21 | The Thaiger
Thailand1 month ago

Thailand News Today | Gambling crackdown, Seafood market to reopen, Vlogger challenge | Jan 21

Thailand News Today | Covid testing for visas, Business impact, Vaccine approval | January 19 | The Thaiger
Thailand1 month ago

Thailand News Today | Covid testing for visas, Business impact, Vaccine approval | January 19

Thailand News Today | Weekend Bangkok bombs, Thailand fires, Covid update | January 18 | The Thaiger
Thailand1 month ago

Thailand News Today | Weekend Bangkok bombs, Thailand fires, Covid update | January 18

Thailand News Today | Stray car on runway, Indonesian quake, 300 baht tourist fee | January 15 | The Thaiger
Thailand2 months ago

Thailand News Today | Stray car on runway, Indonesian quake, 300 baht tourist fee | January 15

Thailand News Today | Governor off respirator, sex-trafficking arrest, condo prices falling | January 14 | The Thaiger
Thailand2 months ago

Thailand News Today | Governor off respirator, sex-trafficking arrest, condo prices falling | January 14

Thailand News Today | Chinese vaccine, Thailand ‘drug hub’, Covid update | January 13 | The Thaiger
Thailand2 months ago

Thailand News Today | Chinese vaccine, Thailand ‘drug hub’, Covid update | January 13

Thailand News Today | Bangkok may ease restrictions, Phuket bar curfew, Vaccine roll out | January 12 | The Thaiger
Thailand2 months ago

Thailand News Today | Bangkok may ease restrictions, Phuket bar curfew, Vaccine roll out | January 12

Thailand News Today | Covid latest, Cockfights closed down, Bryde’s Whale beached | January 11 | The Thaiger
Thailand2 months ago

Thailand News Today | Covid latest, Cockfights closed down, Bryde’s Whale beached | January 11

Thailand News Today | Southern floods, Face mask fines, Thai Air Asia woes | January 8 | The Thaiger
Thailand2 months ago

Thailand News Today | Southern floods, Face mask fines, Thai Air Asia woes | January 8

Thailand News Today | 305 infections, No happy ending for massages, Phuket quarantine mooted | Jan 7 | The Thaiger
Thailand2 months ago

Thailand News Today | 305 infections, No happy ending for massages, Phuket quarantine mooted | Jan 7

Follow The Thaiger by email:

Trending