Pesos and Sense Episode about 'Investing Early and the Basics of Compound Interest'

        Last Saturday, 1st day of October, Pesos and Sense taught us the importance of investing early and the basics of compound interest.



 The host of the show, Aya Laraya asked different people if they already started investing and here are some of their answers:
  • Sympre kasi isa sya sa wealth-building mo--ang power of compounding. The earlier you begin, the bigger future value you will get
  • Kung bata ka pa, open your savings account. Teach your kids to spend wisely. Save!
  • I started 3-4years ago sa Stock Market. I’m 24 now
  • Kung ang parents mo ay well-informed tungkol sa mga Investments, it’s better start na nila para sa anak na nila pero if not naman, as soon as malaman mo tungkol sa Investment, you should start
  • Actually, as early as you get your first job so ideally it’s time for you to start investing for an Insurance plan already
  • Pag mas bata ka pa mas mura ang Insurance premium mo per year
  • If you have money to spare even if you’re still a student or maybe your first paycheck. Mag-allot ka ng few percent then unti-unti mo sya i-build
  • Turuan mo ang mga bata habang maaga pa to save and not to spend beyond their means

            And after that, Aya shared his key investment philosophy, “It’s never too early to start investing.”

          He gave an example that combines the concept of investing in stocks and starting to invest early. In 1990, at age 21, you convinced yourself to start investing regularly in BPI stocks for Php5,000 monthly without getting affected in Power crisis, Edsa 1 and 2, Global and Asian crisis. May mapapala ka ba after 20years? Based on the results given by Citiseconline, considering the total amount you invested (Php5,000 x 240months = Php1.2M) it will be worth more than 10M at the end of year 2010. You might be wondering where in the world can your money will grow to as much as nine times more of the amount you invested. Simply because the value of BPI stocks increases every year and when the time you hit 41, you already have money for your retirement. That’s the power of smart investing. 

The Story of Ping and Pong
              
                 Aya shared a story of two friends named Ping and Pong. At age 22, when they already started working for their first job, Ping likes to save a portion of his salary every month until he found an investment vehicle that would give him 10% compound interest every year. But Pong would rather spends his money buying gadgets, gimiks, etc. So Ping decided to start investing P2,000 every month that will amount to Php24K savings every year for his retirement fund. On the other hand, Pong continues to do what he likes doing until he was promoted as the Vice-President of his company at age 40. So Pong decided to start investing Php4,000 every month or Php48K every year in the same investment vehicle as Ping did, which gives him 10% compound interest too. The total amount Pong invested was twice the amount of Ping's investment. Both of them invested for 10years only due to personal reasons. Ping chose to be a public school teacher and Pong wanted to become a rock star.

The total savings amount of Ping and Pong is Php240K and Php480K respectively.
             
           At age 60, who would you think will have higher amount of Investment? Ping who invested Php240K but started earlier or Pong who invested higher amount of PHp480K but he invested late? Lets take a look at the photo below which illustrates the growth of their savings.


         
       Because Ping started investing earlier his money have more time to grow as compared with Pong's money. Though Ping only invested for ten years but his retirement  money will not stop growing. Although Pong invested large amount of money but he didn't have much time as compared with Ping who started earlier than him. Time is money. The earlier you start investing, the higher your money can grow. Even if you have little money now, start investing as early as you can because of the power of compound interest.


             Compound interest is the interest on the interest of your money. The earlier you start, the longer you can invest and the more money you can make. 


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