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A beginner's investment guide to long-term wealth

It's often said that starting out early on one's investing journey will deliver good long-term results.

 

But in light of recent volatility on investment markets, you may be thinking, is this the right time to start off?

Taking your first step is often daunting, but the reality is that investment markets have shown consistent growth over many decades.

And what's clear is those investors who stay the course over time, riding through the regular ups and downs of the markets, have a much better chance of achieving investment success than those who try to cherry pick when to buy and sell.

What's more, it's also clear that because the returns from different types of assets always vary from year to year, spreading your money across a broad range of investments will enhance returns and help reduce your overall risk.

The power of compounding returns

Renowned scientist Albert Einstein famously described compound interest as "the eighth wonder of the world".

Which is where starting out early really comes into play. By following a strategy of reinvesting investment distributions such as dividends, and by making additional contributions over a long period of time, the combination of market growth and compounding returns will likely deliver strong results.

In other words, it's about time in the markets rather than timing the markets.

The 2020 Vanguard Index Chart below shows that a $10,000 investment made into Australian shares in 1990 would have achieved an 8.9 per cent total return per annum over 30 years, with the reinvestment of all distributions, and grown to $130,457 by 30 June 2020.

Over the same time frame and using the same strategy, a $10,000 investment into the broad US share market would have delivered a 10.3 per cent per annum return, and now be worth $186,799.

There is no minimum amount that one needs to make as an investment. However, even a low initial balance will grow substantially over time when combined with compounding investment returns.

Make ongoing investments
But imagine how your wealth could grow if you put in even more. An initial contribution combined with a regular investment savings strategy and the reinvestment of distributions will deliver even higher long-term results.

Investing the same amount of money at set intervals over a long period is known as dollar-cost averaging. That means you're averaging out the cost of your investments through incremental investing – regardless of whether market prices are up or down.

The easiest way to illustrate a dollar-cost averaging strategy is to calculate how investment balances can build up over time, using a combination of regular contributions, the reinvestment of distributions and compounding returns.

How extra investments add up over time

Source: Andex Charts Pty Ltd. Data based on annualised returns since 1990.

The chart above is based on actual market returns and follows someone who started out investing on 30 June 1990 and who continued making set monthly contributions over the last 30 years.

If they'd stuck to a strategy of investing $250 a month into Australian shares, irrespective of market movements, they would now have a balance of more than $443,000.

If they'd had the financial capacity and discipline to invest $1,000 a month over the same period of time, their balance would now be more than $1.77 million. That's despite the sharp fall in markets in early 2020.

Of course, a more realistic pattern for most people is to increase their investment contributions over time as they earn higher wages and other expenses fall.

The bottom line

If you're just starting out, or quite early on in your investment journey, these are all factors to consider – even if you're many years away from retiring.

Successful investing revolves around having a well-planned and diversified strategy that's aligned to your specific goals, and the discipline and resolve to stay the course, even during the most volatile investment times.

And, make no mistake, the earlier you start off investing the more money you're likely to have to enjoy the things you want to do when you do eventually stop work.

With many of us living longer, having the ability to live a financially comfortable lifestyle without fear of running out of money is definitely a long-term goal worth pursuing.

 

 

Tony Kaye
Personal Finance Writer
11 August 2020
vanguardinvestments.com.au

 


Sam El Shammaa

Sam El Shammaa

Director/Financial Planner

For more than 20 years, Sam has been a financial planner helping individuals and families achieve their financial planning goals, by providing advice on Investment Planning; Insurance Planning; Tax Planning; Retirement Planning; and Estate Planning. Working with a network of highly skilled professionals in Sydney he is dedicated to providing high-quality advice and integrated wealth management solutions that simplify and enhance the quality of his clients' lives.

Sam established his own firm in 1997 and has overseen its steady development and growth. Attention to detail, good listening skills and great empathy are symbols of his appreciation by his clients. He has built long-term relationships with his growing client base and aims to provide excellent customer service.

Sam began his financial planning career in 1993 after completing a Bachelor of Science degree in 1991. Since this time he has accumulated many professional qualifications such as:

Sam has volunteered with the Cancer Council of NSW and can be seen almost every year volunteering or participating in the 7 bridges walk.

Away from the business, he enjoys spending weekends with his son. He is also a football (soccer) tragic and is a massive Chelsea FC fan.



George Pereira

George Pereira

Financial Planner

Having worked for national financial planning companies in the past, George has extensive experience in the provision of advice in risk insurance, investments and retirement planning and is focused on forming long-term relationships with his clients.

George has been awarded a Masters of Commerce (Financial Planning) and a Bachelor of Commerce through University of Western Sydney as well as having the Diploma of Financial Services (Financial Planning).


Jane Lim

Jane Lim

Financial Planner

Jane Lim is a friendly character with a bubbly personality. She has the unique ability of making complex information sound simple and easy to digest.

Jane entered the financial services industry in 2006, and worked with big blue-chip financial companies such as Count Financial Limited and AMP Financial Planning Pty Ltd.

She holds a Master's degree in Applied Finance through Macquarie University, and she is a member of the Million Dollar Round Table.

Being a self-confessed "tennis nut", Jane spends many weeknights in the tennis court, and is a frequent member of Sydney's Eastern Suburbs Tennis Competition.

Being a highly motivated professional, Jane is always eager to help her clients on a wide range of financial planning needs.

Paul Jayashekar

Paul Jayashekar

Mortgage Broker/Financial Planner

Paul has been a financial planner for over 15 years helping individuals and families successfully achieve their financial planning goals. He is very focused on building successful long-term harmonious relationships with his clients.

He provides a holistic approach on various aspects of financial advice encompassing areas such as Investment Planning; Insurance Planning; Tax Planning; Retirement Planning and has extensive experience and knowledge in these fields.

Paul's professional qualifications are:

Away from his professional life, he enjoys spending his time with his family doing various activities such as coaching his son and taking him to games. He is a very avid sports fan and a cricket enthusiast.

Christian Tanadinata

Christian Tanadinata

Client Services Manager

Christian joined Capitalwise as Client Services Manager, with backgrounds in both customer service and administration.

Christian is passionate in providing excellent customer service by being attentive to client’s need as well as being able to circumnavigate challenges.

He holds a Master's degree in Commerce specialising in Marketing through the University of New South Wales.

Volunteering is one of his delights in life, where he had spent time being involved with the Centre for Volunteering, St Vincent de Paul's Society, and Sculpture by the Sea in a variety of positions.

Jenny Zhou

Jenny Zhou

Administration Assistant

Jenny is a University of New South Wales graduate who joined the team as an Administration Assistant. She is keen to put her customer service and organisational skills to use, making sure day to day operations run as smoothly as possible.

Outside of work, Jenny focuses her efforts on karate and ice hockey. She can often be found coaching and practicing karate at her alma mater. The rest of her time is spent at one of Sydney’s many ice rinks playing, practicing, or officiating ice hockey.

Max Reinhardt

Max Reinhardt

Financial Adviser
B Econ (Hons) Cert IV FS (MB) Dip. FS (FP) AFB MeSAFAA

Max has over 20 years experience in the finance and lending industry of which over 15 years has been in financial advice. Max attained a Bachelor of Economics honours degree at The University of Sussex in 2004, after which he settled in Australia with his family.

Max has never stopped studying as he is always looking at ways he can better assist his clients and has studied many courses in financial advice, lending and technical analysis as he continues to try and stay ahead of his competitors in terms of the knowledge he can share with his clients.
Max has worked for several large and successful organisations before starting his own business in 2014. He has gained valuable experience from the likes of Lloyds Bank, American Express, HSBC, General Electric, Commonwealth Bank and Westpac. He draws on this vast experience to benefit his clients whilst bringing a much more personal touch than you would get from one of these larger organisations.

Max’s philosophy is to always put his clients first, which is what makes him so successful and popular with his clients, having built a thriving business primarily through referrals from very happy clients.

In order to better serve you, please select the appropriate contact details for the department you are looking for below.

Department Phone Email
Financial Planning (02) 8599 0835 (Option 1) info@capitalwise.com.au
Accounting (02) 8599 0835 (Option 2) accounting@capitalwise.com.au
Conveyancing (02) 8599 0835 (Option 3) conveyancing@capitalwise.com.au