Earlier we have looked into Unit Trust. Now, we look into compound interest which is closely related and the backbone of unit trust.
Have you ever heard of compound interest? Compound here does not mean the compound you have to pay when you get a speeding tiket but on the contrary, it’s a reward you get when you invest for the long term. This is probably why your unit trust agen will always advise you to invest for the long term, because the longer you invest, the bigger the reward you will receive. To help you understand this concept, lets see the example below :
| Duration
(Years) |
Investment Amount(RM) | Interest Received(RM) | Total Amount
(RM) |
| 1 | 1 200 | 120 | 1320 |
| 5 | 6 000 | 2 058 | 8 058 |
| 10 | 12 000 | 9 037 | 21 037 |
| 15 | 18 000 | 23 939 | 41 939 |
| 20 | 24 000 | 51 603 | 75 603 |
| 25 | 30 000 | 99 818 | 129 818 |
| 30 | 36 000 | 181 132 | 217 132 |
*assuming returns are at 10% per annum and RM1200 of additional investment per year.
Notice that in the first year, the intrest received in only RM120 from the total of the RM1200 initial investment. Now, compare try comparing that with the intrest received in the following years. You will probobly notice that the longer you invest, the more interest you received, no? In fact, on the 15th year the total intrest you received is more than the total investment you have made to date. This is called compound interest.
Compound interest is what will help you multiply your investment. The longer you invest, the stronger your interest power and the faster your investment will multiply.
Notice that your investment needs 15 years to double, but as you approach the 30th year, your investment has multiplied 5 folds. So, invest for the long term, just like Warren Buffet did to multiply his money.
Sheyzal Azman,
Financial consultant
sheyzal@yahoo.com
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