A tale of two investors - but who chose the right path?
Louise’s goal was to save a deposit for an investment property. She decided to set up a regular investment plan of $200 a month on her initial $5,000 investment.
Over the years, Louise’s regular pattern of investing also helped her to benefit from dollar cost averaging. As the markets went up, Louise would buy less, but if the market was down, Louise’s $200 would buy more. By buying less when prices were high and more when prices were low, Louise averaged out the unit price of her BT investment, and reduced her investment costs.
At the end of 10 years, Louise’s total savings had grown to $42,486*. She now had the money to purchase an investment property and extra money for a well earned overseas holiday.
Michael’s goal was to buy a new family car. Instead of setting up a regular investment plan and taking advantage of dollar cost averaging, Michael decided to invest the bonus payments he received from work. Over the years, these lump sum payments were added to his initial investment of $5,000.
At the end of 10 years, Michael’s investment was worth $26,747*. He was able to buy a new car, but not the car of his dreams. And there was no overseas holiday.
Imagine what Michael could have achieved if he’d taken out a regular investment plan.
The default investment return of 6% pa (after fees and before tax) is based on a reasonable expectation of future returns for a balanced portfolio. Michael’s payments include: Year 3 — $2,000; Year 5 — $3,000; Year 7 — $4,000 and Year 10 — $5,000. The assumptions used are considered reasonable, based on historical data and future expectations. No allowance has been made for taxation, including capital gains tax on investment earnings. For more information on things to watch for when selling some or all of your investment, please refer to www.bt.com.au . Also note that the projected amount is shown in today’s dollars (that is discounted by the assumption rate of the inflation to take into account the change in the cost of living). The projections given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the projections are based are reasonable, the projections may be affected by incorrect assumptions or by known or unknown risks and uncertainties.
The results ultimately achieved may differ substantially from these projections. This case study is not intended to be relied upon for the purposes of making financial decisions. The final amount is an indication for illustration purposes only. It does not show the actual returns (if any) that will be achieved in an investment or its value at any time. The value of an investment can rise and fall over time.