Ykhjuy

I am really new to investing and am so confused. Books, blogs and any conference suggests investing is the way to multiply wealth. I do not have good start up money to play with mutual funds thus was looking at ETF funds to start.

I was trying to use Wealthify to calculate some projected gains. Based on pumping £50 a month for 5 years (adds up to about £3k of investment after 5 years), if I play it risky(adventurous) I get to make less than £300 pounds, after 5 years! Seriously? This is considered good? And bear in mind this is the most risky option. Playing it safe gets me like £100 after 5 years.

What am I missing. Why is investing a good idea? Or is the myth true after all where you need lots of money to invest to see a reasonable return?

Please advice. Thank you.

Please see screenshot for reference on the projected gains.

https://imgur.com/a/ZM74od1

One problem with looking at investments this way is that only £50 of your money was in the market for the whole 5 years. That last investment of £50 was only in the market for a month, and £600 of it was in for less than a year.

This makes it seem like your investment isn't growing very fast. To be able to see how it might grow I tend to use a spreadsheet, it lets me show separately how the value is growing year after year instead of just displaying a final number.

Patience.

Five years is a very, very short period of time. The gains in long term investing are much more significant in the 50th year than the 5th.

If you double your money every 10 years (a reasonable rate for many long term portfolios), after 5 yeas, you'll have less than 1.5x the original amount, but aftet 50 years, you'll have 32 times your original investment.

You're looking at a 5 year period that does not show the impact of compound interest. This is a short time period thus limiting the impact of compounding. The risk set is not advantageous as there is little time to recover from a potential dip. This is noted under 'if the market performs worse' in the image. Investing is normally a long game.

To visualise the impact of extending the terms using a tool that includes a graph may help.

Secondly, you are adding up the total principal and treating the it like a return over a year. This makes comparison with anything else harder. Having tried to go backward from the figures, your rate of return is around 4.2% - 4.3%. While this may not seem like much, it is around 2-4x greater than you could get in a savings account.

Sticking with your £3000 principal and return of 4.2% :

• in 10 years you will have made around £1608.


• in 20 years you will have made around £4078.

(assuming stable conditions and that the rate of return averages out at the same level)

From a historical perspective, much larger returns have been possible. This is pointed out with the caveat that no-one knows if it will continue.