I asked several people with limited financial knowledge how they would turn $5000 into $50,000.
Their answers almost universally involved gambling or other get-rich-quick schemes as the core strategy. While these responses don’t necessarily surprise me, it is concerning that the consensus view was to try something that’s almost guaranteed to lose money.
A more robust option is to focus on the key variables that impact the ability to turn $5000 into $50,000. Fortunately, there are only three:
• Time
• Taxation
• Investment returns.
1 Time
While you cannot control time, it is predictable. If you set the time horizon for 20 years, it will take exactly 20 years to get there – there are no surprises. As obvious as this sounds, it is a crucial point as time has such a significant effect on returns.
To illustrate this, consider the following hypothetical:
Twin brothers at 20 each receive a $50,000 inheritance. One spends it, the other invests it (assume a 10%pa return). At retirement (70) this investment will be worth $5,869,543. The brother who spent his inheritance decides at 45 it’s time to catch up with his sibling. He is shocked to learn that he would need to invest $541,735 to be in the same position at retirement. While the elapsed time between receiving the inheritance and retirement has only halved, the required capital is almost 11 times as much.
Time is a powerful contributor to turning $5000 into $50,000. With this in mind, let’s focus on the other variables.
2 Taxation
You have some ability to control tax paid by the type of investment you choose, as well as the tax structure you invest within.
Diese Geschichte stammt aus der August 2017-Ausgabe von Money Magazine Australia.
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Diese Geschichte stammt aus der August 2017-Ausgabe von Money Magazine Australia.
Starten Sie Ihre 7-tägige kostenlose Testversion von Magzter GOLD, um auf Tausende kuratierte Premium-Storys sowie über 8.000 Zeitschriften und Zeitungen zuzugreifen.
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