You may be thinking, ‘All this is very well, but cash in the bank is safe. If I keep it there I know I can’t lose it. Why take all this risk for a little extra return?’

Let’s look at the returns that can be made from a simple $1,000 investment with no further contributions at varying amounts of interest per annum.

If you are lucky, you may get a return of 1.5% from a fixed term cash deposit account – but as you can see, a 20 year old investing $1,000 will have failed to double it by the age of 60. But a 20 year old investing the same amount in a simple stock index fund that matches the average market return of 10% will have a nice $45K nest egg over the same period.

Another twenty year old might invest in a mutual fund with a 1% charge – after all what’s 1%?

By reducing the return to an average 9%, that 1% will have cost the mutual fund investor nearly $14K – and that’s assuming that the mutual fund manages to equal the performance of the market. Eighty percent of mutual funds fail to do so.

An investor with a little skill may be able to make a little more than the market. At 15%, that $45K nest egg now becomes $268K. And an investor with the skill, diligence and fortune to make an average 20% return can turn that modest $1,000 into nearly one and a half million.

The power of compounding combined with enough time to allow the magic to do its work is awesome.

Grasping the significance of time and rate of return is the most important lesson that you can learn from this book. Even a small increase in percentage returns can make a huge difference to an amount invested over time.

And once grasped, the conclusions are obvious. Put away as much as you can as early as you can. And having done that, do whatever you can to increase the rate of return.

And that pretty much sums up the purpose of this book – to help you ‘do whatever you can to increase the rate of return’.

You will find many advisors eager to help you in this endeavour. And nearly all will charge you a hefty fee for doing so, while at the same time giving you no guarantee of results.

Many small investors put their faith in these firms and consign themselves to a lifetime of high fees and low returns.

Next Topic: The Magic Plan