Maximising returns for the win!

Everyone wants more money at the end of the day. When their investment matures, they look at the money they put in and what they have now. The art seems to be maximising your returns.

People will do anything to get more money in – from Ponzi schemes and get rich quick ‘opportunities’, the world is full of them!

In this post I don’t want to focus on these though, I want to look at the fundamental factors you have control over to make more money at the end.

One of the lectures I watched from Harvard explained that there are three things that you can change to make more money:

Rate of Return (Interest on investment)

Time (period until maturity)

Initial investment amount (the principle)

In other words, an investment vehicle (read: you give them money, they give you more money after some time) will tell you they will need your money for x amount of time. If you give them x amount of money, they will give you your money back as well as x amount of interest.

Rate of return (Interest on investment)

This is the interest rate that the investment offers. The bank will often offer you an annual rate, such as 6.35%. Note: you get two types of interest rates:

  • Simple interest is calculated only on the principal amount of the loan.

    • An example is this massive campaign where ABSA claims to give you 13.5 % p.a. – yet this does not include interest on your interest earned. Essentially you will be getting about 10.5 % effectively.

  • Compound interest is calculated on the initial investment and interest earned.

    • Credit cards, for example, calculate the amount every month – if you fall behind or paid less than the interest, they will charge you interest on the interest that was charged on your initial amount.

We all know negotiating with a bank is challenging. It’s often like speaking to a wall. It’s similar to most other investments: shares and bonds, mortgage loans and money market – the magical people in expensive offices decide the rates, and you have to abide by it. This is thus the most difficult to affect, and also the one that investors often try the hardest to manipulate.

Top tips for rate of return

  • Know what your interest rates are
  • Know if you get compound interest or simple interest on your investments
  • Check at least yearly back on your investments
  • Check the fees that will affect your rate of return

Time

The longer your investment stays invested, theoretically, the more money you should be making. Examples of this are property, stocks and cash. If you would, say invest money in the bank, you get interest on your money. The next year, you would be getting interest again. If you have compound interest on your investment, you will also receive interest on your interest.

Top tips for time

  • Do some calculations to confirm if something is profitable and do it at least yearly on long term investments.

  • Invest for the long term – it will happen that you need to fall back on it a few years

Initial investment amount

Yeah, you have some level of control in the amount that you invest. Think about that pizza you ate yesterday – if you took that money and invested it into your mortgage, you will be saving some serious money – running into the tens of thousands of 

Top tips for your investment amount

  • The gambling saying rings true – the more you invest, the more you can potentially earn.

Conclusion and last tips

We all want serious money in our bank account – and this makes it more challenging for everyone investing/ Be wise with your investments – don’t just invest in everything that comes past, but calculate and work out and scrutinise the investments.

My suggestion here is to be mindful about your investments. Use your time and money well, and check carefully the terms and conditions (and fees) of your investment contract. Last but not least, be mindful of the interest you will receive at the maturity of your investment.

If it sounds too good to be true, it probably is.

Remember that no one saw Steinhoff or Madoff Inc. failing as gloriously as it did – so keep your eye on your investment – both the factors above and the company that is investing your money.

There’s no free lunch in investing – but diversifying your investments is probably the closest that you will find that is about the equivalent

Put your money in multiple places, not just under your pillow. Have some of your money in a solid and safe investment like a money market account, as well as in property and stocks.

Happy investing!