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By Candice Paine, 18 February 2014
Instead, see yourself cycling with your family through the vineyards of southern France, sipping wine and breaking baguettes in the Mediterranean sun. The second option may seem like a dream, but if you patiently invest the money you would have spent on the bicycle and allow it to grow through compounding – that exotic trip could definitely become a reality.
Says Candice Paine, head of retail at Sanlam Investments, the company behind a new Power of Patience campaign, which encourages people to make conscious, informed purchasing or investment decisions rather than impulsively spending hard-earned cash, “It is human nature for us to want instant gratification. But the truth is that whenever we spend money on non-essential items, we are in fact losing out on a big opportunity – the opportunity to invest that money and make it work for us.”
Paine explains that compounding allows money to earn an investment return on the return you have already received. “When you invest, you get a return on the capital you invested. Assuming you leave the money alone, this return is added back onto the amount you invested, and you now earn a return on that bigger amount. The growth will be slow at first, but as time passes and the investment returns are compounded, you will experience exponential growth in the value of your initial investment. It does still require you to be patient, committed and disciplined but the rewards are potentially spectacular. This is truly an investment ‘superpower’ if you let it work for you."
“So for instance, if the money you would have spent on the new bike is instead placed in a unit trust and the positive power of compounding takes over, you could grow your money in a big way. In the not too distant future, you could be sitting really pretty and be able to afford a far more lavish cycling treat. Also, it is highly likely that your needs and interests will change – that bike may be gathering dust within a year, but if you’d invested instead, you’d be sitting on a healthy sum of money which can be used to meet other needs, like education, a deposit on your new home or to pay off your bond.”
She says, “You can invest R200 a month in a unit trust or make a lump sum investment in a Sanlam Investments unit trust starting at R5 000 or both. The bigger your investment, the bigger the potential return and the faster you can get to that dream cycling holiday.”
Paine explains how compounding works:
So before you succumb to the temptation of buying that expensive new bike, think about investing in something far more valuable – it’s definitely worth the wait.
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