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Invest early to reap the magic of compound interestouth has its advantages when it Is $20,000 a lot of money to invest when$2.9 million.comes to investing. And the reason this interest rate is equal to a one year sup-When it comes to compounding, time isDollarsYfor this is the magic of compound-ply of take-out coffees? By comparing thea great advantage. ing. The longer money stays invested, the value of both over the long-term the invest-Time also allows for increased invest-&more it can grow. So the goal should be to ment choice can be convincing.ment returns to be significant as well. If invest at as young an age as possible.If there is a strong motivation, for many,the investment grew at an additional 1 perSenseWhen you see the numbers you will investing at an early age to benefit fromcent and earned 9 per cent the value wouldappreciate the magic. the magic of compounding can be done.soar even higher.By Peter WatsonWe will assume a 16 year old invested We are going to ignore any tax implica-At age 65 the investment would have$20,000 on his 16th birthday. That is a lot tions but we will make one suggestion.increased from $800,000 to $1.25 million.of money for a teenager.Consider transferring the investmentAdd an additional 16 years to the 9 per centTo understand how much it is, we into a Tax Free Savings Account beginningreturn and the value would increase fromto arrange a loan.should put it in the context of other at the eligible age of 18. That way the$2.9 million to $5.4 million.For example, the interest rate on a lineexpenses the teenager and his family will money can grow tax free and the funds willRemember we did say it was magicof credit could be 4 per cent whichincur at this stage in life.not be taxed when they are withdrawn. and indeed it is. The lofty figures of $1.25amounts to $800 per year. Is that tooThe child will go to university after This will take a few years to completemillion, $2.9 million and $5.4 million mayexpensive? You be the judge.high school and that will likely cost a little but is still worthwhile.seem a little extreme. That amounts to $2.19 per day which isover $20,000 each year. Some might be And now for the fun part: The arithme-Well there is nothing extreme aboutin many cases the approximate cost of alucky enough to get a car and that could tic.those numbers. It is all just simple arith-cup of coffee at many shops in Oakville.cost $20,000.If the $20,000 grows at 8 per cent annu-metic.The weekly expense is just over $15 whichSo what happens if the teenager does ally it will be worth $800,000 by the age of The end result is an investment of sev-is the cost of a movie for a student if henot have $20,000 to invest? One option is 65. That is a ton of money from such aeral millions of dollars. And it started withpurchases a small treat.relatively small initial investment.a small loan that cost just over $2 per day.Estate AuctionRemember that the loan cost just over $2And yes the magic of compounding isTuesday March 22, 2011 Preview 4:30 pm., Auction 5:30 pm.per day.truly magic.At the Kings Court Banquet Hall 1159 King Rd., Burlington ON. Hopefully, you will pay off the loan as Submitted by Peter Watson,MBA,CFP,An excellent selection of fresh antique and contemporary estate merchandise from the estates of cash flow permits. R.F.P., CIM, FCSI. In 1991,Peter founded Hogan, Mcmaster, Tennant, Woodhouse and others.If the investment was made at birth orPeter Watson Investments in Oakville.View online @ www.shaferauction.comwas left invested until age 81, those addi-Peter can be reached at 905-842-2100 orCash, Visa, MC. Debit, only, 10% Buyers Premium, HST. All items sell as is, All sales fi nal.tional 16 years would make a huge differ-visit the website at www.peterwatsonin-Please note later start time, full seating, snack bar, delivery available.Shafer Auction Co. Ltd. 905-634-6300ence. The $800,000 would now be worthvestments.com.Renovate Decorate CelebrateOakvilles BBQ Headquarters5JQPC (KV\IGTCNFTime is Precious, Mistakes are Costly and Decorating is complicated.NOW OPENft Giates fic ertiCInquire about your eQEWAvailabl1260 Speers RoadPersonal Design Consultation1260Unit 13, OakvilleSPEERSAt Fitz by Design we are committed to creating breathtaking, XUnit 13Nfunctional spaces that are unique as the individuals living in them. ? ? ^ ? ? UJQPC"HKV\D[FGUKIP EC ^ YYY HKV\D[FGUKIP EC Tuesday-Friday 10am-7pm; Saturday 9am-6pm; Sunday 12pm-5pmwww.insideHALTON.com OAKVILLE BEAVER Friday, March 18, 2011 16333rrrdd LLiinnee44tthh LLiinneeDDoorrvvaall DDrr