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| Question on investing from a complete novice... |
denberg |
11/23/04 |
Hello
I live in the UK and I have a question about investing. I have just read a book called "THE MAGIC OF THINKING SUCCESS" by Dr David J Schwartz, published in 1987. This is one of those "self help" books that you can see in all the bookshops nowadays, and the author is writing about how to make the most of your money. He urges readers to invest wisely, starting now, saying that even if you don't think you can afford to invest, it is critical that you try to do so, in order to avoid being short of money later in life.
In Chapter 10 he says,
"Just as a tree farmer knows that little trees will become giants in time, the smart investor knows that a small amount invested consistently will, in time, make a fortune.
Consider the potential, the power of $1,000: One thousand dollars invested to appreciate at an average of 18 percent per year will be $32,000 in 20 years, $1,024,000 in 30 years, and $32,768,000 in 60 years! And a one-time investment of $10,000 that appreciates an average of 18 percent per year will be $320,000 in 20 years."
He then goes on to discuss further money making strategies.
Now obviously, I know nothing at all about finance or investments, or I wouldn't be posting this, BUT -
WHERE ON EARTH DO YOU FIND BANK ACCOUNTS OR BUILDING SOCIETY ACCOUNTS THAT PAY 18 PERCENT INTEREST?
Scwartz discusses them as if they are commonplace in the US. Here in the UK most bank accounts or building society accounts pay 1.75 percent per year. Some pay less.
So please could someone explain this to me? Have I missed something absolutely fundamental here, something so elementary that it's staring me in the face? Where did Schwartz get this 18 percent from?
Many thanks
Paul
London UK.
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Clarification/Follow-up by denberg on 11/23/04 9:52 pm:
Dear KKemper
Thanks, that's a good answer. So what are these things called trust deeds and US tax lien certificates? Are there any equivalents to these in Britain?
Schwartz definitely says 18% and not 1.8%. Surely you would never be able to get $1,000 up to one million dollars at only 1.8%, as he says in his example?
Paul. Clarification/Follow-up by denberg on 11/23/04 9:56 pm:
Thanks Roland
I take your point, and I've never invested any money that I couldn't afford to lose in the first place. Fortunately, I haven't lost anything at all yet.
But the reason I asked the question was - Schwartz seemed to assume in his book that one can easily find returns of 18%, that they are common. My question is, where would you look to find this kind of return? How would you start?
Don't worry. As I say, I've only ever invested money that I can afford to lose. I'm just baffled by this high rate, that's all. You're an accountant aren't you...so you'll know that ordinary banks and building societies in the UK only pay 1.5 - 1.75%.
Clarification/Follow-up by ROLCAM on 11/23/04 10:16 pm:
Dear Paul,
The thing that you are completely ignoring is the time factor.
You are referring to NOW in the United Kingdom.
Schwartz example was quite acceptable prior to 1987.
There were plenty of opportunities both
in Canada and also in Australia to invest
any sum of money in a variety of
First Mortgage Debentures with Fixed Returns
of 17.5% per annum.These rate was available for 5 years and freely available by many Finance Companies.
When interest was paid monthly and also when
it was accumulated to the maturity,
the ultimate result was more than 18% p.a.
I hope this explains the situation.
Regards,
ROLCAM.
Clarification/Follow-up by denberg on 11/23/04 11:02 pm:
That's more like it Roland, that's what I was after. Thanks.
PS Let me know if there are any other investments today that guarantee 18%!
Thanks again,
Paul.
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