Compound Your Way to Financial Freedom
So, how does Value Investing help us achieve Financial Freedom? Let me give you an illustration.
We assume that Charles is going to win the Money Game and achieve financial freedom solely by Employing his Money to work for him. Charles monthly basic need is $2,500, so he must employ his money in a way that gives him $2,500 a month.
Through Afterthe reading of this book, Charles acquired the skill to Make his money Money work Work at a return of 20% per year. (I will teach you how to get do this in a while.). Let’s calculate when how long it takes for him tohe can achieve financial freedom.
Because he can achieve 20% per year and he needs a passive income of $30,000 ($2,500 x 12 months) per year to achieve financial freedom, he needs:
20% x Capital = $30,000
A capital of $200,000.
He decided to start saving $3,600 and also keepby setting aside $300 per month to save for his financial future. That means he will save $3,600 every year. When can he reach the amount of $200,000 and become financially free?
$200,000/$3,600 = 55.5 Years!
What? He needs to wait 55 years?
Wait a minute, why doesn’t he invest his initial $3,600 and all the subsequent $3,600 since he can get a 20% returns? Let’s do that and see if there is any difference.
Here is a table that shows what happens if Charles invests his $3,600 every year.
Year Capital 20% End Of Year
Year 0 $3,600.00 $720.00 $4,320.00
Year 1 $7,920.00 $1,584.00 $9,504.00
Year 2 $13,104.00 $2,620.80 $15,724.80
Year 3 $19,324.80 $3,864.96 $23,189.76
Year 4 $26,789.76 $5,357.95 $32,147.71
Year 5 $35,747.71 $7,149.54 $42,897.25
Year 6 $46,497.25 $9,299.45 $55,796.71
Year 7 $59,396.71 $11,879.34 $71,276.05
Year 8 $74,876.05 $14,975.21 $89,851.26
Year 9 $93,451.26 $18,690.25 $112,141.51
Year 10 $115,741.51 $23,148.30 $138,889.81
Year 11 $142,489.81 $28,497.96 $170,987.77
Year 12 $174,587.77 $34,917.55 $209,505.32
Note that from Year 1 onwards, we add in another $3,600 because he will continuously invest. So what it means is that today he invests $3,600 and gets back a 20% return of $720. So at the end of the year, he has $4,320. At the same time, he has also saved another $3,600 to invest. So at the beginning of Year 1, he will have $4,320+$3,600=$7920 to invest.
Looking at the table, Charles will be able to accumulate $200,000 by in 13 years. That is far better than 55 years, isn’t it? And of course if he chooses to invest more, the results will be even faster.
So what are you waiting for? If you are serious about becoming Financially Free, you got to start investing already.
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Mind Kinesis Research Team
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
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