Compounding Interest

I just realised I have spent nearly 2k on my driving lessons and yet I'm still not confident in passing it first time.... Sometimes , I do sort of envy people who can pass first time with only a few pratice lessons... Guess that's my life and hopefully luck will be on my side during my test which is on the coming monday :).....

Coming back to the investment topic, I believe one should always start to invest early to maximise the potential of the concept compounding interest. The power of compounding was said to be deemed the eighth wonder of the world - or so the story goes - by Albert Einstein.

While it is never too late to save but putting it off too long can take out of your retirement money.. Hence a conclusion is that to retire comfortably, one should start to save at first opportunity..

Example

Tom and Dick, both age 21, start their first job where they receive the same salary. They share the same apartment and split their household expenses equally. Tom decides to start saving $100 from each month's salary. Dick, however, wants to wait until he is older before starting to save. If we assume an annual rate of return of 6%, Tom accumulates approximately $16,700 after 10 years. Dick starts saving at age 31, and like Tom, decides to save $100 per month. By the age 65, Tom's retirement account would be about $253,000, while Dick's account balance, started 10 years later, would be about $132,000. (Quoted from investopedia)

An annual rate of return of 6% is nearly impossible with merly allocating your money into the bank saving account.. From what I have gathered, currently the highest interest rate offered by bank is only 2% and with factors like inflation, changes in interest rate and etc, it may undermine your savings which may result in a deficit.. Therefore I will like to emphasise the importance of investing in stocks and etc. Risks and gains have a direct correlation therefore the higher potential of returns, the riskier it is but with some investing rules, I believe the risk can be minimised.

I vaguely remembered an article was mentioning that the first thing one should always invest is books and I strongly agree with them.....