Appendix 2

Compound interest table

The effect of compound interest is the principal reason why long-term investments perform better than short-term investments. It’s a simple mathematical process that produces remarkable results. The secret of successful investing is patience. The longer you hold an investment, the more it is likely to grow, simply through the effect of compound interest.

Looking at Table A2.1, you can see that in the first few years the increase in the value of an investment is not very much, even at a high rate of return. After many years, however, the effect of compounding becomes much stronger, and you see a really substantial difference between a rate of return of, for instance, 2 per cent and 4 per cent after 25 years. ...

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