How to 10x your savings?

I have come across various videos on YouTube that talk about how you can double your money. I thought I should go multiples higher and explain how you can 𝟭𝟬𝘅 𝘆𝗼𝘂𝗿 𝘀𝗮𝘃𝗶𝗻𝗴𝘀 🙂

I am a fundamental investor and not fond of casinos. I try to capitalize on the powers of patience, contributions, and compounding. Let’s understand it through an example.

Assuming you have an initial investment of PKR 1,000 and you earn 10% profit per year. At the end of Year 1, you would have an initial capital of PKR 1,000 and PKR 100 in profit. Let’s assume further that your initial investment is locked at face value; you would have PKR 2,000 at the end of 10 years. PKR 1,000 in initial capital and PKR 100 x 10 = PKR 1,000 in profit. These are called simple calculations.

Now let’s consider 𝗿𝗲𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁 of the profits into the same investment. Now, you would begin with PKR 1,100 in Year 2.

Year 2 = PKR 1,100 x (1 + 10%) = PKR 1,210

ee, you have an additional amount of PKR 10, from the profit component on the reinvested amount of PKR 100. Let’s take it further:

Year 3 = PKR 1,210 x (1 + 10%) = PKR 1,331

Year 4 = PKR 1,331 x (1 + 10%) = PKR 1,464

By Year 10, you would have PKR 1,000 x (1 + 10%) ^ 10 = PKR 2,594

Just by virtue of compounding, you have managed to generate an additional 30% (PKR 2,594 vs PKR 2,000) over the simple process.

With this compounding approach, you need to earn an annualised return of 26% to 10x your initial capital over 10-year period.

Now let’s add another dimension to it, i.e. contributions. In addition to PKR 25,000 initial investment, let’s add monthly contributions of PKR 25,000 as part of our savings approach. Each additional contribution shall also earn profits, thereby creating a snowballing effect to your overall portfolio. You can use MS Excel for this calculation.

MS Excel = Future Value (profit rate, number of periods, fix contribution, present value, type= 1 for annuities with payment at the start)

MS Excel = FV ( 15% / 12, 10 x 12, 25000, 0, 1) ~ PKR 7 million

* 15% return is a more reasonable number in case of Pakistan

* 15% has been divided by 12 to generate a monthly average

* 10 years have been multiplied by 12 to generate number of months

WOW!