How to grow a meaningful nest egg with little money but a lot of time

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A common and unfortunate misconception is that investing is for the rich and that building wealth requires a sizeable amount of money.
How to grow a meaningful nest egg with little money but a lot of time

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A common and unfortunate misconception is that investing is for the rich and that building wealth requires a sizeable amount of money, according to Darius van der Walt, actuary and member of the Investments Committee of the Actuarial Society of South Africa (ASSA). Van der Walt explains that successful investors are those who understand that time is the critical factor when building wealth and not necessarily the amount of money at your disposal. "While you definitely need some spare cash in order to invest, having a lot of time ahead of you is far more important than the amount of money you can spare every month. The earlier in life you start investing, even if it is a small amount, the bigger your nest egg will be when you need it most." According to Van der Walt, time is a key factor when investing, because it enables compound growth. "The compounding effect over time is what significantly accelerates the growth of your investment." Considered to be one of the world's most successful investors, Warren Buffett credits his wealth to "a combination of living in America, some lucky genes, and compound interest".

Van der Walt says while the first two could be considered either fate or luck, depending on your outlook, the power of compounding is available to anyone earning at least a living wage and willing to invest a portion for the long-term.

Why compounding is so powerful

Van der Walt explains that compounding is enabled when income (dividends, interest or rental income) is reinvested and capital growth is left to attract further gains. The effect of earning income on income and further growth on capital gains is referred to as compounding.

"While reinvesting income is key, compounding of capital growth is also critical and even more so when a portfolio has higher exposure to riskier assets with higher expected returns such as…
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