How ‘compounding’ can make you a millionaire
🔸 Plus: Criminals are making £1 million a year with a Whatsapp recruitment scam 🔸 A new fragrance will make you smell like Scotland 🔸 See the Calvin Klein ad banned in the UK 🔸
Hello! Here’s today’s 2-minute guide to demystifying money and making you richer
Compounding: What it is, and how it can make you rich.
A Calvin Klein ad was banned in the UK for being too sexy. Or sexist.
Criminals are making more than £1 million per year using a Whatsapp recruitment scam.
A new fragrance will make you smell like Scotland.
Bankers are bored of going to Davos.
Fraudsters are stealing songs and putting them on Spotify.
Legendary investor Masayoshi Son mortgaged his vast Silicon Valley mansion.
The SEC’s Twitter account was hacked.
Look at the salaries at Jane Street Capital.
Yesterday’s markets
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FTSE 100: 7,624.93 ⬆️ 0.64%, ⬇️ 1.40% YTD
Bitcoin: $42,664.70 ⬇️ 0.41%, ⬆️ 0.89% YTD
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GBP to EUR: €1.1627 ⬆️ 0.80% YTD
How compounding can make you a millionaire
One of the most annoying aspects of personal finance is all the technical jargon that goes along with it. So today we’re going to unpack one of the most common concepts, and how it generates free money for you:
Compounding.
Put simply, compounding describes how the interest you earn on your savings earns more interest on top of itself, and that interest then earns more in turn, and this can go on forever and ever.
It’s one of the most important concepts in finance. And you need to know how it works.
In the long run, anyone who leaves their money alone in an account that pays any kind of return, for a long time, will end up rich. This doesn’t just apply to interest in a standard savings account. It applies to any kind of investment that grows over the years, especially if those investments are also paying dividends — which are the cash bonuses that investors receive simply by staying invested in the stocks or bonds they bought.
Compounding turns small amounts of money into very large amounts of money, like a snowball rolling down a hill
For example, if you are 20 years old and you can save £10,000 per year, and your savings grow by 10% per year, then you’ll be a millionaire when you are 43 years old. That’s doable because if you follow Moneyin2’s advice and save into an S&P 500 ETF you’re likely to get a 10% annual return on average.
Yes, 23 years of saving is a long time. And £10,000 a year might sound daunting right now. But as time goes by — and as your career takes off, and you get paid more — £10K is going to get easier and easier.
By the end, you will have put £230,000 into your savings and it will have earned £795,582 on top. That’s three-quarters of a million — in free money.
You didn’t have to work for it. Your money worked for you:
Compounding is how rich people get rich and stay rich
There’s a really easy-to-use compounding calculator here where you play around with your own numbers and time periods. We used 10% to make the numbers easy.
Obviously, there are no guarantees in investing. Returns go up and down. It isn’t so much the amount of money you can save each year. In rough years you’ll struggle to save anything, we’ve all been there. But there will be flush years, too, and you need to take advantage when you can.
Your most important asset is time
The big takeaway is that the earlier you start, the more dramatic the effect compounding will have on your money.
Start rolling that snowball now.
And for dessert …
A Calvin Klein ad was banned in the UK for being too sexy. Or sexist. Depending on your POV. The Advertising Standards Authority said this underwear ad featuring FKA Twigs “presented her as a stereotypical sexual object.” Only two people complained about the ad. CK will likely be delighted by the publicity.
Criminals are making more than £1 million per year using a Whatsapp recruitment scam. They run fake job ads and stage fake job interviews. By the end of the process the mark thinks they’re about to get a new career but in reality they’ve handed over their bank details and the scammers have placed malware on their phone … and then they take your money.
Do you want to smell like Scotland? A fragrance company has launched a new set of colognes that combine “smouldering” earth, peat, minerals, spices, wood resins, leather, tobacco and, yes, whisky. It’s called Kingdom Scotland and it starts at £120 per bottle.
Bankers are bored of going to Davos. People are complaining about The World Economic Forum — again. Delegates have got “conference fatigue” and don’t want to go anymore — especially because it costs $250,000 a ticket.
Fraudsters are stealing songs and putting them on Spotify. Turns out, anyone can upload music to Spotify and start collecting payments when someone plays them. So criminals are stealing obscure, indy music, uploading it with new titles and band names, and collecting payments from the music app.
Legendary investor Masayoshi Son mortgaged his vast Silicon Valley mansion. He bought the place for $117.5 million but when his investments in WeWork started going belly-up he took out a $92 million loan on the house. The pad has an “elevator, bowling alley, four storeys and at least as many urinals,” the FT says.
The SEC’s Twitter account was hacked. Bitcoin investors had a wild ride last week after a hacker took over the SEC’s X account and tweeted the fake news that the US federal agency had approved a new Bitcoin ETF. A short time later, the SEC did in fact approve the ETFs. Here are the screengrabs of the chaos.
Salaries at Jane Street Capital are staggering. “Entry-level engineering hires at Jane street are the highest paid in the world, earning $325k on average,” according to eFinancialCareers. Quant researchers get a $200K base, a $100K signing bonus, and a performance bonus of up to $150K.
More from Moneyin2:
Photos: Calvin Klein; Kamyar Adl, Flickr; TaxRebate.org.uk, Flickr.