How does compound interest work?
Let’s assume you put $50,000 into your super. To keep things simple, you never contributed another dollar over the next 40 years of your working life. How much money would your money make if your super was returning 5% a year?
Year 0 $50,000
Year 1 $52,500 ($50,000 + ($50,000 x 5% = $2,500))
Year 2 $55,125 ($52,500 + ($52,500 x 5% = $2,625))
Year 3 $57,881 ($55,125 + ($55,125 x 5% = $2,756))
Year 4 $60,775 ($57,881 + ($57,881 x 5% = $2,894))
Year 5 $63,814 ($60,775 + ($60,775 x 5% = $3,039))
…
Year 10 $81,445
…
Year 20 $32,665
…
Year 40 $351,999
Over your working life, your $50,000 would grow to $351,999 through compounding interest. Not a bad effort given you didn’t do anything and simply let time and money do the work for you. This is how the wealthy stay wealthy. Their money does the work.
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General advice disclaimer
This is general information only and does not take into account your personal objectives, financial situation or needs. You should assess whether the information is appropriate for you having regard to your objectives, financial situation and needs and consider obtaining independent professional advice before making an investment decision. If information relates to a specific financial product you should obtain a copy of the product disclosure statement for that product and consider that statement before make a decision whether to acquire the product.