Investing in your 20s

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Cape Town - Life in your twenties is generally filled with adventure and a sense of reckless abandon as you've been set free from the shackles of school life and are now paying your own way, says Walter van der Merwe, CEO, FedGroup Life.

The freedom that a regular income brings can be intoxicating and many young people choose a life of care-free spending.
 
Few 20-somethings therefore give a thought to saving even just a small amount each month toward their retirement. It's understandable given their circumstances, but if more young people adopted a basic approach to saving earlier in life they would set themselves up for a very comfortable future, cautions Van der Merwe.
 
This is largely due to the power of compound interest, which means a little saved over a long time can deliver big returns. Take, for example, someone who invests R15,000 at the age of 25 in an account paying 5.5% compound interest annually. Twenty five years later that amount would have grown to R57 200.89.

By contrast, if that person invested the same amount at the same interest rate at the age of 35, it would only have grown to R33,487.15 by the time they reached the age of 50.
 
"Granted, most 20-somethings don't have a lump sum to invest into a retirement savings plan, but it is a simple example that illustrates that the longer you allow compound interest to work, the more money it will make for you," he says.
 
With that in mind, a small monthly contribution of just a few hundred rand invested each month from the day you start earning an income would be the best place to start. Obviously the smaller the amount with which you start, the longer you need to leave it invested to accumulate significant interest, but the basic principle applies.

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