Interesting Reads

The Magic of Compound Growth

Nov 23, 2017

The first snowfall of the season is one of the glories of living in the Canadian north.  It is wonderful to see how the accumulation of snow turns the outdoors into a winter wonderland.  Do you know how the ‘snowball effect’ works with your investments?  It is the magic of compound growth that occurs when you put your money in an investment that delivers a return and then your earnings are re-invested.  The longer you leave your money, the greater the opportunity for growth.



By investing early in a Registered Education Savings Plan (RESP), you can take advantage of both compound growth and education savings grants that help your money grow.  Take a look to see how investing early pays off….

 

What’s the ‘secret’ behind the magic? Let’s take a closer look at the math.


Use a compound interest calculator  and you will see how saving $100 per month in an investment at an annualized rate of 5% will be worth $35,165.70 after 18 years when compounded monthly. If you started your education savings when your child is 5, that same monthly investment would grow to $22,102.23 by the time your child finishes high school.  Here’s a comparison to illustrate how a monthly contribution of $100 could grow, by the age of child.



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In this example, in a Flex First Plan  from Knowledge First Financial, CESG valued at 20% of contributions is collected on 12 monthly payments each year. The income on investment and CESG is compounded monthly based on an assumed 5% annual return, less fees.

While there is no magic wand to predict how your investments will perform, one this is for certain – compound growth can work for you. During Education Savings Week, learn more about the benefits of RESPs and how compound growth and education savings grants will turn your investments into funding for your child’s education.

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