Did you know there are only 3 factors that determine the final value of your wealth at the end of your investing life? Whether it’s cash in a high interest savings account, money invested in the stock market or real estate market, precious metals, or any other kind of investment, the 3 variables are the same.
They are the starting principal, the rate of return and the number of compounding periods.
Watch this video and I’ll explain what each of these factors are. I’ll also explain how you can control them to maximize the amount of wealth you leave behind as a legacy to your family.
THE STARTING PRINCIPAL
The first factor that determines the final value of your wealth is the starting principal. This is your initial deposit into a high interest savings account, the money you spend on an investment property, or the purchase of shares in a company or precious metals.
Whether you can afford to invest $10K, $50K or $100K will impact on the final value.
You can add to your starting principal by making further contributions on a regular basis. David Bach, in his best-selling book The Automatic Millionaire, wrote about the “latte factor”. By setting aside the cost of a daily latte and redirecting it towards your investments, it can grow to a fortune. The same applies to social status symbols like expensive cars and clothes. Is there a better way you can spend that money?
By resisting social status, peer pressure and consumer marketing messages, you can influence your starting principal and maximize your wealth.
THE RATE OF RETURN
The second variable that determines the growth of your wealth is the annual rate of return, or the percentage by which the total value of your investment grows each year. This is represented by the interest rate on a savings account, the earnings per share on the stock market, or the appreciation and rental income of real estate.
You can use the rate of return and the rule of 72 to estimate how long it will take for your investment to double. With a rate of 1% in a high interest savings account, it will take 72 ÷ 1 = 72 years to double your money.
By investing your money into your own business, especially if you have healthy profit margins, you can achieve a much higher rate of return.
THE NUMBER OF COMPOUNDING PERIODS
The final variable is the length of time you allocate for your investment to grow, also known as the number of compounding periods. Do you expect to live for another 50 years, or are you starting late and only have a handful of years left to grow your wealth?
Out of the three factors, the number of compounding periods can be the most powerful one to growing wealth. With enough time on your side, you can make up for a limited starting principal or a low rate of return.
However, time is also the variable you can control the least. You can control your starting principal by living below your income and making regular contributions. You can control the rate of return by owning a business and stretching your profit margins. You can’t control time.
You can’t turn back time and start investing 50 years ago, nor can you live a healthy and fit life for 200 years. All you can do is live a healthy lifestyle, in an effort to prolong the limited time you have.
The MOBE Platinum Mastermind is where the most experienced mentors in investing and asset protection share their investment methods with fellow members. To learn more about the Platinum Mastermind, click HERE.