The Question Of Building Wealth In Life

The question of building wealth in your life will boil down to two questions? ( Not all wealth of course )

1) Are you able to save each year?
2) When you save, where do you put the money?

HYPOTHETICAL

Assume you're 20 years old, you own a salon in the hood, your income it's not that much but you make the goal to save R19 000 per year and you put it in a retirement account. You work, grow your Salon and save for the next 50 years until you retire.

You can save, that's amazing but what matters most is  where you put that money.. There are couple of options where you can put it, let's evaluate.

1) How about under the mattress or Savings account, you can put R19k there every year for 50 years. 

That is the easiest and safest place to it. It's nice & safe there, it'll never go away and it won't go up and down like stocks do.

But with that option, lets see:

- Average Annual Return: 0%

-Amount Accumulated in 50 years: R 950 000.

2) Bonds.
Well bonds are better than stacking up your money "under the mattress" right?, at least with bonds your money will grow in line with inflation, which on average is about 3%.

-Average Annual Return: 3%

-Amount Accumulated in 50 years: R2 227 892,22

3) How about Stocks, scary right? they go Up & Down. So unpredictable stocks are. Most people don't invest in Stock because they think Stocks are Risky and some who invest in Stocks lose their money well because they don't really know what they are doing, they are just buying Stocks because they have the money too. 

But enough about that. An average Stock can earn you about 8-10% returns each year. If you choose stocks, lets see how much will you have in 50 years.

-Average Annual Return: 9.8%

-Amount accumulated in 50 years: R 22 637 319,58

So you see it does matter where you put your money.
and of course there are other options where you can put it and your money can also can grow way more that in a Savings account, Bonds or in a Stock. I'm just talking about average here.