Why Waiting to Invest Could Cost You in the Long Run

Bryce: [00:01:09] Welcome to get started investing in this podcast. We cover all the basics. You need to start your investing journey. We unpack all the jargon, the confusing bits here, your investing stories with the goal of making investing less intimidating. And along the way, we're going to try and have some fun. My name is Bryce and as always, I'm joined by my Equity Mates Ren. How's it going? [00:01:30][20.7]

Alec: [00:01:31] I'm very good Bryce. Look, as I said that for context, we're on YouTube now so people can now watch what we do in the studio. Yes, I've got some feedback that I play with my. Don't touch it. Just as I went to say I'm good. I like again. So everyone watching it on YouTube, get ready. I'll be touching them like a lot in this episode. [00:01:53][22.5]

Bryce: [00:01:55] So in this episode, we want to cover all there is to know about compounding the eighth wonder of the world according to what? Technically, Einstein. But there's debate as to whether he said it. But we're going to be going through what is compounding. It's a very important term to understand at the beginning of your investing journey as early as possible, because it is quite a powerful concept. So we'll be going through that and then closing out the episode with a listener mailbag from one of the members of our community. And that is Brigitte, who has a couple of questions around sustainable investing. And one of the funds that we had spoken about earlier on in our investing journey Ren many, many years ago, PPM Capital. Before we do jump into the compounding part, though, we do want to again thank all of you out there who have gone to our Equity Mates dotcom slash support page and either supported us through a one time donation or through a recurring monthly. It is obviously something that we're very grateful for. So so thank you very much. If you would like to support Equity Mates in everything that we do and you find value from this content, then head to Equity Mates dot com forward slash support. You can give us 10 cents, 100 hundred dollars or 100000. We don't mind a hundred thousand. [00:03:18][83.1]

Alec: [00:03:18] It would be very nice. [00:03:19][0.7]

Bryce: [00:03:20] So yeah, a massive thank you to all of you out there. Also a reminder, Ren that we have launched Mate Pay Love. [00:03:27][6.5]

Alec: [00:03:28] Yes. [00:03:28][0.0]

Bryce: [00:03:28] Which is our latest podcast at Equity Mates Media. It is all about the money side of relationships hosted by two amazing sisters, Carmel and Zoe, down in Melbourne. They're tackling the issues that everyone faces and should be talking about with their partners when it comes to money, everything from going on the first date through the de facto relationships. And who gets what if there is a divorce? [00:03:53][24.6]

Alec: [00:03:54] Yeah, now I'm not in a relationship, but I still go up [00:03:57][3.5]

Bryce: [00:03:57] and slide into this day if you want. [00:04:01][3.3]

Alec: [00:04:01] That wasn't the point of that. So I but I still got something out of it. I still found it interesting. But you as someone who's been in a relationship for, what, nine years? Quite a while. Quite a while. Probably got. Oh, I hope you got something out of it. Did you have you had any serious money conversations with Harriet since? [00:04:21][19.6]

Bryce: [00:04:21] Well, I mean, it's we've been having conversations before the podcast, thank goodness. But I have taken a lot out of the podcast that the girls are doing. So, yeah, I think the the message is that regardless of if you are single or in a 25 year relationship, there is something to get out of this podcast. So go and check it out, mate. Pay love. It'll be live in your podcast place now. [00:04:43][22.0]

Alec: [00:04:44] Yeah, there's a lot of conversations about money that don't happen in relationships and hopefully this podcast can break down some of those barriers. [00:04:51][7.2]

Bryce: [00:04:51] Absolutely. And just a final shout out to our community investor from last week's episode. Kandace, it was great having you on a reminder that if you would like to come on and share your investing stories, just like Candice did, head to Equity Mates dot com forward, slash contact and leave us a voice message or leave us an email and we'll get in touch to ring you on the show. [00:05:12][20.8]

Alec: [00:05:13] Just housekeeping section is getting very long. It is. It is. Will be soon be releasing a special bonus episode. Housekeeping. [00:05:21][7.8]

Bryce: [00:05:22] That's about right. Ren so compounding. [00:05:25][2.5]

Alec: [00:05:26] Yes. [00:05:26][0.0]

Bryce: [00:05:27] Since the creation of the first company, nothing has created more wealth than the stock market. [00:05:32][5.7]

Alec: [00:05:33] Well, it's something that I like to say and it's been it's been challenged property potentially. Um, but if we divide the market again. But I think. Yes, since the. What the six I'm very conscious of now since since the sixteen hundreds, the creation of the first joint stock company ERU day to be stock sale property ought to be number one or number two. But it is just an incredible wealth creating machine. Yeah. And it's it's pretty simple. At the end of the day, it's it's not highly technical, you know, trading and all this stuff. It is simply just investing in these companies and waiting and letting them do all the work as they get more valuable and every year getting a little bit bigger and a little bit bigger. Yeah. And comparing it to something pretty incredible. [00:06:29][55.8]

Bryce: [00:06:29] So we're going to call this episode, don't wait to invest, invest and then wait, because that is the power of compounding. As Ren just said, if you just let it build and build and build over time, as you understand, as we go through a few examples, it becomes incredibly powerful. So Ren Einstein apparently has said that compounding interest is the eighth wonder of the world who understands it and that he who doesn't pays it. And so hopefully by the end of this episode, you will understand that we also reached out to some of our community to get their idea on compounding. And one of them has said that compounding to create a passive income is truly powerful and it is something they did not quite realise at the start of their investing journey. [00:07:16][46.4]

Alec: [00:07:16] Yeah, and so I think the point of this episode is just to really understand what we're talking about when we're talking about compounding and how it can work for you and you know what you need to do. And but probably more importantly, what you don't need to do to really enjoy its effects. For some people who, you know, have been investing for a while or been with us on the journey to probably sick of us talking about it, but you know what? It's that important we got to do it again. [00:07:41][25.1]

Bryce: [00:07:42] Yeah, absolutely. So, I mean, Ren, you're at school and you're in your maths class and you've [00:07:48][6.1]

Alec: [00:07:48] actually actually dropped maths. Oh, really? I mean, now I'm sure [00:07:54][5.3]

Bryce: [00:07:54] that is not [00:07:54][0.3]

Alec: [00:07:55] good. [00:07:55][0.0]

Bryce: [00:07:57] That is not good anyway. People may have heard simple interest and and compound interest. What are we referring to here when we're talking sort out our compound interest? [00:08:11][13.2]

Alec: [00:08:11] Well, hold on. Let's take a step back. So interest is the money that you earn on your money. And in the simplest sense, so you've got a bank account or you put your money in a term deposit or whatever, and the bank pays you some money for giving for putting your money with them. Yeah, that's called interest normally expressed as a percentage. So let's say you put one hundred dollars in a savings account and you get one percent interest. The bank's paying you a dollar. Yeah. Yeah. So that's interest. There's two types of interest. Simple interest is on that hundred dollars. If you're getting one percent every year you just get one percent of. [00:08:52][40.9]

Bryce: [00:08:53] So every year I will just receive one dollar. [00:08:55][1.9]

Alec: [00:08:55] One dollar. [00:08:56][0.2]

Bryce: [00:08:56] Yeah. One dollar you one one point to one dollar year three etc.. [00:09:00][4.1]

Alec: [00:09:01] Yeah. Compound interest is where you get interest on the original amount you put in and then all previous interest you've earned. [00:09:11][10.1]

Bryce: [00:09:11] So I've put in a hundred dollars and that's one percent. The next year I will get one dollar for that, but then I have a total of one hundred and one dollars and then the next year I will get one percent of one hundred and one dollars. Yes. And then the next year I will get a 10 percent down. A hundred and one dollars and one cent, one hundred [00:09:31][19.7]

Alec: [00:09:31] and one cent whatever it is. Yeah. [00:09:33][1.9]

Bryce: [00:09:34] And it continues to build that way. [00:09:35][1.5]

Alec: [00:09:36] That's it. That's it. And so to put it in the context of the stock market, that's that's really what we're talking about when we're talking about your money compounding in the stock market. If the stock market grows on average at seven percent a year, the first year on the hundred dollars you invested, you get seven percent. So you get seven Dollars, but then you have one hundred and seven dollars. And so you make seven percent on that. And so you make even more and then you've got more to begin with and then you make even more and it just snowballs into something really quite meaningful. [00:10:08][31.7]

Bryce: [00:10:09] Do you have to be paid interest or dividends for compounding to take effect? [00:10:14][4.5]

Alec: [00:10:14] No, no. So what we're mainly talking about here is the growth in the share price. [00:10:22][7.4]

Bryce: [00:10:22] Yes. So, yeah, it is the growth in that price over time, year after year after year. It's not necessarily you actually receiving any interest or dividend payment? [00:10:34][12.0]

Alec: [00:10:35] No, but it helps. It does help and it accelerates the process as long as you reinvest the dividends. So if you get cash and you go spend it on, you know, more hair gel or whatever else you're buying on. Shirts, then you won't compound, but if you get that money as a dividend payment from your company and rather than spending it, you put it back into the share market, that that will help that compounding effect. So I've got some numbers for you. Even though I dropped maths in year 12, I can still excel. So extending that Dollars example and using big round numbers, let's say I had 100 dollars to start investing and I earn 10 percent a year on that. Yep. [00:11:22][46.9]

Bryce: [00:11:22] Or it grew 10 percent a year. [00:11:24][1.2]

Alec: [00:11:24] Well, yeah. Yeah. So with simple interest. So if every year I just got 10 percent in year one I would get ten dollars and in year two, three, all the way to 20, I would still get ten dollars. At the end of it I would have my original hundred bucks that I put in and I'd have ten dollars a year for 20 years even. I can do that maths. 200 bucks. Yes. So over 20 years you've got 100 you originally had and 200 you've made. So you've got 300 bucks. Not bad. Not bad. You've tripled your money. Yeah, but if you compare if that was compound interest rather than simple interest. So you when you put 100 bucks in you get 10 percent. So you get ten bucks, same simple interest, but then you have 110 Dollars and you make 10 percent on that. So you get 11 Dollars the next year and then you have one hundred and twenty one dollars in year three because you add the 11 to the 110, then you make 10 percent on that, you get 12, those 10 and you can start to see how the you just earning a little bit more every year and it doesn't feel like much. But over the course of 20 years in year 20. With simple interest, you would be making ten bucks that year with compound interest in making over sixty dollars of 100 dollar original investment, and so after the 20 years, you would have earned two hundred dollars with simple interest or over five hundred and seventy bucks with compound interest. And so you can just start to see that over time that gap really starts to widen and the numbers start to get quite meaningful. [00:13:02][97.8]

Bryce: [00:13:03] Yeah, the benefit of time is the critical part here. It's you know, if you were to look at those numbers again and compare it over three years, OK, it's not a huge difference. Yeah, but if you start looking at 20 years, if you start looking at 30, 40, 50 years, and particularly if you're starting your investing journey, you know, in your late teens or your early 20s, if you have the ability to think really long term and put that money away and just let it compound, then it really starts to become exponential later on in life. When those you know, if you're compounding 300000 at 10 percent year after year, 400000 at 10 percent year after year, those numbers really start to add up quickly. [00:13:46][43.0]

Alec: [00:15:06] So that's, I think, enough theory about compounding. Yes, I guess when we apply it to the share market, what we can say is that that theory holds. That theory has held historically. I'd hope so. Otherwise, I'd [00:15:22][16.1]

Bryce: [00:15:22] have to finish the episode here. [00:15:23][1.3]

Alec: [00:15:24] And I think I think really the point when we're talking about the share market is it's great if you want to pick the next Microsoft or the next Apple or the next Amazon and, you know, become a millionaire by the time you're 30 like Powter, you would love it as well. Bryce is 30 and like a couple of months. So it doesn't have much time, but always there. But this idea of compounding your wealth does you don't need to be finding that needle in a haystack. Next superstar company. Jeff Bezos leading it. You can just invest in the whole market. And so I've looked at Australia and America. So in Australia, I've looked at our All Ordinaries index, which is like the 500 companies in America, the S&P 500, again, the 500 biggest companies, if you just invested in the index. So just bought an ETF that held all 500 and held it for 40 years. So 1980, you started out your working career. You're a young go get a 20 year old. You know, in the 80s, Reagan's president, Hawke and Keating are running around in Australia. You've got to save up a thousand I set aside for you. Yeah. [00:16:37][72.4]

Bryce: [00:16:38] What transport would they be going to work on? Try to [00:16:40][2.4]

Alec: [00:16:41] bicycle. Bicycle. Yeah. You can't afford a car yet. [00:16:43][2.4]

Bryce: [00:16:44] It's a thousand bucks as well. It's a fair bit of cash back. [00:16:47][3.6]

Alec: [00:16:48] You tried. Yeah. So you saved a thousand bucks and you invest it in Australia at the start of 1980. By 1989 it's just a scratch over five grand. Five thousand eighty eight dollars. Not bad. By nineteen ninety nine. It's fourteen and a half thousand dollars. By 2009 it's thirty three and a half thousand dollars. By 2019 it's a bit over seventy thousand dollars seventy one thousand eight hundred. And just that's that's the Australian All Ordinaries total return. Yeah. In that time think about all the stuff that happened. We had the tech bubble burst, we had the global financial crisis 9/11. We had 9/11. We had, you know, Australia, the recession that we had to have. When Keating floated, I said the GAO said we had the 1997 Asian financial crisis like we had the Iraq war. We had, you know, so we had so much. We had the Bali bombings, all that stuff. I don't know what effect that had on the stock market, but like all all that that wall of worry that, you know, you think about the stock market and you think about how risky it is. But this young go getter in the 1980s who just put a thousand dollars in the stock market and left it for 40 years, has [00:18:10][82.3]

Bryce: [00:18:10] walked away with seventy one thousand eight hundred dollars. And they're doing nothing. [00:18:14][3.5]

Alec: [00:18:14] Not picking a stock. Yeah, not watching their investments every day, not waiting for the right time to invest, not buying and selling or trading, putting it in and waiting. [00:18:25][10.4]

Bryce: [00:18:25] And that's without even adding anything as well. Imagine if you then took it to the next stage and said, alright, well, I'm going to put in a thousand every year. [00:18:33][8.1]

Alec: [00:18:34] That would be that would be crazy. [00:18:35][1.1]

Bryce: [00:18:36] And it's going to be walking away with hundreds of thousands if he lets the compounding do its thing. What about in America? Are we looking any different? I mean, yeah, here we go. Similar a thousand to eighty six thousand nine hundred over a similar period of time. And again, Ren same thing, many world events. And I think that's a really good point. And it's actually one that's really hard to keep in context when shit does hit the fan. [00:19:02][25.5]

Alec: [00:19:02] Yeah. And this this American one is a really important example because, as you said, shit hits the fan. And so. Just to run it through, because there'll be something that jumps out at you. I hope you start with a thousand in 1980. By 1989, you have about the same just a scratch, over 5000. By 1999, you've got twenty six and a half thousand. And for those that can remember all this string of numbers that I'm just saying, the equivalent in Australia, you had fourteen thousand at that time. So the US growth, the US killed it. Yeah. The 90s tech boom between 1999 you had twenty six grand. In 2009 you had twenty four grand. What the. Yeah. And then but so like obviously we went from 1999 Tech was booming, the bubble collapse and then we had the GFC. And so in that 10 year period you lost money. Shocking 10 years like you'd be not great. You'd be spewing if you were checking your account every day, [00:20:04][61.5]

Bryce: [00:20:04] which you shouldn't. [00:20:05][0.3]

Alec: [00:20:05] But between 2009 and 2019, you just held the S&P 500 total return closed from twenty four grand to eighty six. [00:20:14][8.8]

Bryce: [00:20:15] Eighty seven in 10 years you've gone from twenty four thousand to eighty six percent. Pretty phenomenal. So I think the key lesson from, from this really is I hope you can see the power of compounding in both the examples. We've turned a thousand dollars into 70000 or 86000, near 87000 from doing nothing but holding the main index in both Australia and the US. That is all you've had to do and just let compounding do its thing over a 40 year period. This is the this is the key point. You start to exponentially grow the longer you hold these things. And secondly, as Ren has pointed out, there are many instances of market corrections and worry and opportunities for you to panic and sell. But if you just stick with it, the further you zoom out on a stock chart, the, I guess, less worried you should become because you can see that over a long period of time, generally speaking, the stock markets to recover and you just need to hold your nerve when it starts to wobble a little and just remind yourself that this is a long term game. [00:21:20][65.1]

Alec: [00:21:20] Yeah. And now this is this episode probably is completely flying against our interest because people could listen to this episode, invest in some index funds and then just sock it and listen to, I don't know, shameless or hello sport or some other stock plus other podcast instead. But I think I think that's the point. And that's one of the key things that we've learnt over our journey. Like we love talking about investing. We obviously doing it full time now. But you don't you don't have to you don't have to feel like you have to be constantly plugged in. And I think that was something I definitely felt when I got started. I felt like if I wasn't always paying attention, I wasn't keeping up and then I shouldn't do it because I wasn't keeping up. But that's that's not the case, like. Don't want to invest, invest away, as the name of this episode is, just invest and wait. Don't don't stress, don't stress, it's a stress free. [00:22:20][60.1]

Bryce: [00:22:23] So before we jump into our mailbag from Brigitte Ren, I guess the question is, how can we easily achieve compounding? And I'm talking about, you know, sort of from a product point of view or an investment strategy point of view. And as we've mentioned a number of times here, we believe one of the easiest ways is to just hold an index. You know, there's many ETFs available. We've done a series on Get Started Investing feed all about ETFs. So head over and check that out. It was ETFs for beginners, where we go through a number of ETFs that track indexes both here in Australia and overseas. But there's probably no easier way to do compounding than through sort of like an index. [00:23:06][43.0]

Alec: [00:23:07] So there's two there's two elements to compounding. It's earning a consistent rate of return and then over a long period of time. And so the the first one is buy into, you know, you can compound an index, you could do a thematic ETF, you could do an individual stock. But just keep in mind that. The further the risky you go, the more specific you go, the less likely you're going to get a consistent rate of return because companies are more uncertain and fanatics are more uncertain, uncertain. But you need to just find find a few things to invest in and then hold it for a long period of time. The worst thing you can do is try and buy, like try and trade in and out of positions, because, you know, that's the quickest way to start missing some of the big the big moves up. Um, yeah. So I think I mean, for me, it's a dollar cost averaging play. And that's how I you know, we talk about a core and satellite portfolio approach, which will probably do an episode on soon. But in my core portfolio, it's very much just putting a little bit of money in every time into some pretty vanilla index funds and ETFs and just hoping that I can be like that young 20 year old in 1980s who holds for 40 years and ends up with something, something quite meaningful. [00:24:32][85.4]

Bryce: [00:24:33] So Ren, I hope everyone has been able to get something out of that episode. I think the main point is don't stress, let compounding do its thing. [00:24:43][9.5]

Alec: [00:24:45] It is the main message. [00:24:45][0.9]

Bryce: [00:24:46] It is the eighth wonder of the world. [00:24:48][1.6]

Alec: [00:24:49] According to if you Google the quote, it will be Einstein. But apparently he never said it. So I don't know whatever. It's not like we can ask him, not like he's alive to tell us. Exactly. [00:25:00][10.7]

Bryce: [00:25:01] So we're going to move to a listener mailbag now. And this one is come in from Bridget. She's left us a voice message over a Equity Mates dot com forward slash contact. And we're going to have a listen to that now and then briefly answer her questions. [00:25:15][14.1]

Bridget: [00:25:16] Hi, guys. Love your show. I just sort of started looking into investing recently, and it's definitely been a big help in understanding how to get started. My main question is I'm wondering how to invest sustainably or ethically. And I noticed that there are some ETFs where this is sort of explicitly in the title Ethical Investments, etc.. I just guess I'm wondering, do you guys look into investing sustainably and in those sort of large ETF so, you know, some of Vanguard's big ones. Is there a way to tell if they are investing sustainably or not? Yeah. And how do you guys tackle that? Because I don't really want to accidentally invest in coal or something, for example. Thanks. Yeah. [00:26:02][45.3]

Bryce: [00:26:03] So Ren, the question from Bridgid obviously is around sustainability. Is it something that we do and how do you know if it's legit on the 10? [00:26:12][9.0]

Alec: [00:26:12] Well, you certainly don't because you do a lot of gambling and I'm not sure cigarette stocks have been good dividend payers for you. [00:26:21][8.6]

Bryce: [00:26:22] Not true. Not true. Anyway, I don't I don't actively invest in any sustainability funds [00:26:29][7.7]

Alec: [00:26:31] because you are just a terrible person that lumps coal. [00:26:33][2.3]

Bryce: [00:26:35] Yeah. So that's the short answer for me. I don't I don't actively have any specific ETFs that are focussed on sustainability. Um, yeah. Sue me. Um, I might. [00:26:44][9.6]

Alec: [00:26:45] But also [00:26:45][0.7]

Bryce: [00:26:46] to you. [00:26:46][0.2]

Alec: [00:26:47] Yeah I do. I own the what's the efficacy data shows global one. Yeah. Um I think, I think the answer to the question is there are a number of products that are ethical on the label and you've just got to have a look because what they're holding, because everyone's ethical standards are different these days, you're not going to find coal in any sustainable fund. Although I did see a press release a couple of days ago that announced I'm not going to name the company, but to celebrate the third year of this sustainable leaders fund, we're announcing that we're removing all coal stocks for the last three years. Um, but I think so. Like I'm looking at the beta shows, Effi Holdings now that you can go to that website, any product you sure like an ETF issuer on their website will say what they're holding. Um, second biggest company, Tesla. Tesla is undeniably doing a lot of stuff in the renewable energy space, electric cars, great for the world, great for climate change. But for some people, they will look at the labour rights or the corporate governance of Elon Musk and say, I actually don't want to invest in Tesla for that reason. And there's a bunch of companies where there's sort of like and on one hand on the other hand thing, you know, like companies like Toyota and Ford and stuff are in a lot of these things and that they're doing now doing a lot with electric cars. But a few years ago, they were probably the you know, some of these legacy car makers were the biggest thing standing in the way of that transition. And so people, you know, Apple like for some on some things, you know, they're doing a bunch with the renewable energies, though they seem to do a lot, but they're working. Conditions in factories in China have always been in question. And so ethics. Really hard because they're so personal. Everyone's got different standards and stuff like that, so go to the website, have a look. If you're investing in a non ethical product and you want to say what's in there so you don't accidentally invest in a coal company or an oil company or whatever. Same thing on the website. It will have all the holdings if it's an ETF or if it's an individual company and you're not sure what they do, we'll probably know what they do before you invest it. But go to their website, read the annual report or all that information will be there. [00:29:14][146.5]

Bryce: [00:29:14] Yeah, it's still a very, very much a grey area. We are pretty confident over the next sort of five to 10 years that's going to be more and more products that come to market that play in this space and allow for much more choice. But for now, as Ren said, have a look under the hood of these ETFs and really going to have to make your own decisions. [00:29:32][17.6]

Alec: [00:29:32] Yeah. And, you know, there's some there's some big well-known ones, you know, like the Future Soopers or the Australian Ethical Investments of the World, then. Yeah, there's a bunch of ETFs with sustainability or ethical on the label. So that's probably where you want to start. [00:29:46][14.1]

Bryce: [00:29:48] So that brings us to the end of Equity Mates Get Started Investing feed. As we said at the start, please do contact us if you would like to come on the show and share your journey or if you'd like to ask us a question. We are here to help you on your investing journey. Break down barriers. Remember, though, that we also do have our Equity Mates investing podcast that you can move across to once you're starting to feel a bit more confident where we have plenty of conversations with experts in the industry as well as I have a bit more of a detailed chat about the stocks that we're excited about our core and satellite portfolio as well. Plus, breaking down some more, I guess so confusing elements of the finance world. So head across there. We've also got Mapei Love and also comedian, The Economist to podcast's in Equity Mates media that a well worth checking out. Also finally, to close it out, we've got a number of emails I would suggest getting started with the Get Started Investing feed email, which you can do via our website at Equity Mates dot com forward slash email, but otherwise Ren always fun to chat. [00:30:54][65.9]

Alec: [00:30:54] We're going to have to change the name of this show to get started. Stop housekeeping. [00:30:57][2.8]

Bryce: [00:30:59] That's important, but good to chat. We'll pick it up next week. [00:31:03][4.0]

Alec: [00:31:03] Sounds good. [00:31:03][0.2]

Speaker 3: [00:31:04] This podcast proudly brought to you by Equity Mates Media. Always remember all information contained in this podcast is for education and entertainment purposes only. It is not intended as a substitute national financial label or tax advice. The host of Equity Mates and not financial professionals and are not aware of your personal financial circumstances before making any financial decisions. You should read the product disclosure statement and if necessary, consult a licenced financial professional. More information. Head to our disclaimer page, where you can find resources to search for a registered financial professional. You. [00:31:04][0.0]

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