The power of investment

By Lanre Oyetade

The following material has usually formed part of what we discussed at several editions of the ‘Wealth for the Wise’ seminars held at various locations within the country in 2007 and a variant of the same materials will form part of our discussions at the first edition of the same programme in 2008 to be held at the Jogor Centre, in Ibadan on Saturday, April 05, 2008.

Now, we have learnt over the years that after having pooled a saving, the next thing and indeed the only thing that can legitimately and reasonably multiply one’s financial wealth is the 10-letter word – investment.

Indispensable
Even in the economic history of nations, it has been established that no nation grew economically without paying adequate attention to the twin concepts of saving and investment. It was theorised at a time that for a nation to escape the vicious cycle of poverty, which has held most underdeveloped nations captive, it must save and invest at least 12 per cent of its gross domestic product or national income.

Savings alone will not get any individual, firm or nation there; beyond that, each economic unit must invest its savings in viable vehicles that will multiply the income and savings.

20 per cent minimum
Personally, I have over time preached and practised the message that an individual must save at least 20 per cent of his income to move on to the next level of financial security. And I have drawn my inspiration from the Biblical story of how, under the instruction and leadership of Joseph, the Egyptian nation had saved not less than 20 per cent of its income to escape the imminent drought that had been revealed to its king, Pharaoh and correctly interpreted by gifted young man, Joseph;

Mere saving not nearly enough
And I have equally stressed over the years in which the Good Lord has given me the privilege and opportunity to write and coordinate personal finance that it is not nearly enough just to save; one must go ahead to invest the savings.

You find some individuals save and save for months or years only to ‘collect’ the savings and splurge it on a depreciating consumption good that had always caught their fancy.

Like I pointed out to a colleague of mine in my days at the Independent newspapers, one must plan what he intends to invest money on, even before he commences a savings programme or else the entire exercise would be wasted effort.

Investment and the law of compound interest
It is only investment that will significantly increase and multiply wealth because investments are often subject to the law or principle of compounded interest, which has been variously described as man’s greatest invention and the eighth wonder of the world.

The law of compound interest works on the basis and principle that interest earned on an investment itself earns interest such that the investor’s money keeps working for him endlessly even while he is taking time to rest or sleep, as long as he does not terminate the investment process.

It is akin to a man who invests in animals such as cattle and the initial cattle give birth to kids, which in turn give birth to other kids and the process continues for as long as a couple of the cattle are alive, even while the man is asleep- his money or investment continues to work for him, endlessly.

It is simply conceivable from the foregoing that this principle or law works best with time, which implies that it does not take huge initial investments to become rich; rather it takes a little amount invested in a compound interest-yielding investment OVER AN APPRECIABLY LONG PERIOD OF TIME, implying that the earlier one starts an investment programme and the more dedicated one is to regularly keep investing, the sooner one will find himself a rich individual. The best time to have started investing was when you got your first pay but not to despair; the next best time is now!

A few examples
Simple calculations for instance have shown that investing N5,000 regularly in a vehicle that returns a conservative 10 per cent per year will amount to a million naira in 11 years. The same calculations reveal that if one ups the amount invested to N10,000 monthly without fail at a 10 per cent rate of return, one would be worth a million in only six years. Such is the power of investment working on the principle of compounded interest. And the higher the rate of return or amount invested, the sooner one hits the million-naira mark.

Let us make it a date at the Jogor Centre on April 05, where we shall also treat several interesting and value-adding principles of wealth creation.

See you there!