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Compounding and other Investing concepts
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Why it matters 1)Human life/Asset pool- a)Age b)Optionality c)Salary growth vs. Wealth Growth 2)The future (Capitalism vs other societies).
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The Real Compounding Formula
How it works? Wealth=Time X Saving input/rate X rate of return per year. vs. W=TSR Understanding 3 variable and how to make them work for you. Time (T) -No control on. -Easiest variable. -Start Early.
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Time 25 year man invests 100 pounds/month and get a return of 15% with a retirement age of 65(40 years of compounding). 3,092, year man invests 100 pounds/month and get a return of 15% with a retirement age of 65(40 years of compounding). 1,444,064 The first 5 years (10% of investment time) makes a difference of 100% percent to your pot.
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Saving inputs 1)Maximize savings. How? - Tax efficiency (SIPP and ISA and Spread betting, training). - Better planning big ticket vs small ticket (travel, bulk shopping, eating out). - The wasted direct debits (movie pass, gym pass). - Declutter. 25 year man invests 100 pounds/month and get a return of 15% with a retirement age of 65(40 years of compounding). 3,092, year man invests 120 pounds/month and get a return of 15% with a retirement age of 65(40 years of compounding). 3,710,851 About 700,000 more for free!!!
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Rate of return(CAGR). Understanding investment opportunity. Risk to reward Asset diversification 25 year man invests 100 pounds/month and get a return of 15% with a retirement age of 65(40 years of compounding). 3,092,376. 25 year man invests 100 pounds/month and get a return of 19% with a retirement age of 65(40 years of compounding). 12,024,576 400% gain for 4% move.
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The triple threat or atomic bomb
When all 3 variables move. 25 year man invests 100 pounds/month and get a return of 15% with a retirement age of 65(40 years of compounding). 3,092, year man invests 120 pounds/month and get a return of 19% with a retirement age of 65(43 years of compounding). 25,446,845 A 750% gain for a 3 additional years, 4% better return and 20 pounds more!!!!!!! Source:
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Investing What is investing? Giving away your purchasing power today and more purchasing power tomorrow. In 2006, if you bought $500 of apple share in place of the Iphones today you would have $9,000 i.e. 9 I phones X
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How to invest? 1)Financial securities(Equities, bonds, fund) 2)Real estate Vs. 3)Gold 4)Alternate (art, classic car, wine)
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Equities What is buying a share ? Its buying a piece of a business.
What kind of business do you want to be in? A business who’s intrinsic value is increasing How do you measure intrinsic value increase 1)EPS growth without significant increase in debt 2)Increase in ROE/ROC – Capital efficacy.
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Equities What are the important drivers of a good business and how to measure them? 1)Qualitative drivers 1)Moat/ Durable Competitive Advantage Demand a)Switching costs b)Product deafferentation c)Brand loyalty
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Equities 2)Supply Low cost supplier Niche 3)ECONOMIES Scale 4)Culture
4)Culture 5)Customer services 6)Marketing and sales
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