Michael recently took a solo trip to Magnetic ...

Money as atomic energy (the compounding nature of investing)

Michael recently took a solo trip to Magnetic Island to get some work done. He also got some time in to go swimming and eat at nice cafes, and he noticed a lot of conservative-looking 60-year-olds. It made him think about the fact that all these people, now enjoying a gorgeous holiday post-retirement, are doing so because of some financial decisions they made years ago. That is, they are living the dream on a paradise island due to the fact that they saved and invested their money right. This is assuming nobody was simply putting it all on a credit card! 

 

But it got Michael thinking that money is like atomic energy. When you consider money you don’t spend as energy, the longer it is invested or saved, the more it grows (compounds). The more you have, the more you can exchange later for whatever you want. Overseas holidays, a new car, a private jet… well, that may be a bit of a stretch, but you never know! How you choose to spend it is completely up to you.

 

For some reason, the compounding effect on money is difficult for our brains to process. But like atomic energy, the more money you have, the more you earn. It’s like atoms splitting – in the same way, your money keeps multiplying. And if you ‘invested’ in an atom thirty years ago, it would now be harvesting you an atom every single year. Your money is the same. If invested correctly, it makes more and more each year.

 

On a recent podcast we compared investing $182,000 in CBA shares in 1991 to the Sydney property market. Those CBA shares would now be paying you $140,000 a year of grossed up dividends. Would your Sydney property be paying you that much in rent? Probably not. Our point is simply that when invested correctly, money can work hard for you.

 

And, of course, the earlier you start, the better. The earlier you start and the more regularly you invest money, the more you’ll have later on. Then you can exchange it for whatever you want.

 

And that is a powerful thing.

Published by Dallas Davison, Michael Hogue and Ali Hogue. August 2, 2022