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### Investing

The mathematical magic of compound interest.

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Your financial life could be divided into three basic financial phases:

• Phase 1 (childhood and studying): you acquire the skills to generate an income.
• Phase 2 (working): you generate an income, live below that income and save.
• Phase 3 (retirement): you live on whatever you saved during phase 2.

Once you get to retirement what you have available is essentially what you did not spend while you were working.  In essence, saving is simply deferred spending.

## The magic

One of the most important concepts to understand during phase 2 of your life is the mathematical magic of compound interest.  This is one of the most powerful wealth creation tools available to you.

Imagine that you saved R1 000 per year over a 40 year period and your money grew by 10% per year. You invest your R1 000 at the beginning of year 1. Your money will earn R100 during the course of that year.  The balance at the end of the year will be R1 100.  At the beginning of the next year you add another R1 000 to the investment.  Your investment starts off with R2 100 at the beginning of year 2.

During year 2 your money will earn 10% interest on the original R1 000 you invested at the beginning of year 1, the R1 000 you invested at the beginning of year 2, as well as the R100 interest your money earned during year 1.

In year two your money will start to earn ‘compound interest’ which is interest on interest you earned in previous years. The interest for year 2 will be R210.  The balance at the end of year 2 will be R2 310.

In year 5 you will earn interest on the R1 000 you invested in each year up till then, as well as on the interest that you earned in years 1, 2, 3 and 4.

In year 8 you will earn more in interest than you are saving.  You will still save R1 000 that year but your money will earn R1 144 in interest.  From that point onwards your money will be working harder than you.

After 12 years the interest will be twice as much as you are saving.  In year 15 the interest is 3 times as much as you are saving.  By year 40 you will have invested a total of R40 000 out of your own pocket, but the interest that your money will earn in that year will be R44 000.

By that stage your money will earn more interest in one year than you have invested over 40. That demonstrates the power of compound interest.

Table: Investing R1 000 per year, earning 10% per year

The illustration above uses R1 000 per year in order to explain the concept simply. In reality the amount you should be investing is 10% – 15% of your gross income into investments. If you did this over a 30 to 40 year period your portfolio could be generating more in interest than you are earning from your job.

Compound interest is arguably the most reliable way to achieve financial independence, which is where you can support your lifestyle from your capital and no longer need to work.

The key is to start soon enough and not to stop. If you have broken service do not cash the investment in and spend the money. If you spend it you reset the clock and you go back to year one. Rather reinvest the money from your pension or provident fund whenever you move from one employer to another. Start early, maintain the continuity and harness the mathematical magic of compound interest.

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# 4 Strategies For Impact Investing

Impact investing isn’t for everyone, to be sure, but with a few investing strategies to assist you and a bit of patience, you should be able to accomplish your goals.

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Harnessing the positive effects of enterprise is easier than you think. Investors can have beneficial effects on a number of social, environmental and entrepreneurial issues with sound impact investing strategies. “Around the world, inspiring pioneers are demonstrating that business and investment can be a morally legitimate and economically effective way to tackle social challenges,” writes Anthony Bugg-Levine for The Huffington Post.

Investing in clean, renewable energy or purchasing private stock in nonprofits aimed at providing education to lower income areas are just a few examples of socially responsible investments.

By approaching impact investing intelligently without pursuing returns ravenously, investors can find considerable profitability while contributing to a greater good. In fact, a 2013 study conducted by GIIN and JP Morgan found that 90% of impact investors reported that they were meeting or exceeding their financial projections.

Related: The Obvious Switch To Modern Ways Of Investing

Here are 4 powerful strategies for effective impact investing:

## 1. Develop a clear plan

Developing a successful approach to impact investing means taking the time to develop a clear plan. Exploring your options, researching the opportunities available to you, and weighing those options carefully will help you remain realistic about the risks and the rewards, both financial and social, of your investments.

It’s important to answer questions like the ones below before making any impact investing decision:

• What kind of impact do you wish to make?
• Which is more important to you: your finance goals or your impact goals?
• What do you want your risk tolerance to be?
• What vehicles will you use to achieve your goals?
• Do you want to directly invest or invest indirectly?

Questions like these will help guide you and root you to a slow and steady plan of action.

Impact investing can be a mixed bag. Impact investing funds have grown in number, but it is uncertain if their profitability has risen with it. “In the last 10 to 15 years, the number of social impact funds has grown from a handful to several hundred,” explains a Wharton article examining impact investing.

“This growth has occurred despite the widespread assumption that in making investments intended to achieve social objectives, investors are accepting more modest financial returns than they would if they were to choose investments solely on the basis of their return potential.”

The vast majority of impact investment funds are private equity funds. These funds don’t make their returns public, so you may hesitate to place your trust in them without some evidence of profitability. Additionally, you’ll need to understand the tradeoffs concomitant with impact investing, such a loss of liquidity and the possibility of diminishing returns.

Related: 9 Warren Buffett Quotes That Will Teach You More Than Just Investing

## 3. Concentrate on fixed-income investments to lower risk

If investing in private equity funds proves too risky for you, then you may want to consider pouring some of your resources into fixed income instruments, such as municipal bonds. These bonds finance important and impactful projects, like building hospitals and affordable housing, while providing you with steady interest payments. “Municipal issuers are typically mission-driven; that is, their projects tend to address environmental, social and community development concerns,” says Goldman Sachs research analyst Michael Kashani.

## 4. Stay realistic

It can hard to juggle both a mission to have a positive impact and a desire to make beneficial social changes. Trying to accomplish both goals requires a metered approach, one with sustained patience and dedication to staying rooted in realistic expectations. You may feel tempted to invest in an array of pressing issues and to make immediate positive change. Overextending yourself can frustrate the process and, in the worst case, preclude you from continuing to invest in important, socially conscious projects and companies.

Related: 6 Rookie Investor Mistakes You Must Avoid For Profitable Investing

Managing Director of Integrated Performance at Uhuru Capital Management, Jed Emerson, explained impact investing’s two-fold mission to contribute to social good and to create wealth as a cohesive – rather than dichotomous – endeavour, saying, “There is an idea that values are divided between the financial and the societal, but this is a fundamentally wrong way to view how we create value. Value is whole. The world is not divided into corporate bad guys and social heroes.”

Indeed, impact investing, while certainly challenging, can be a source of both fulfillment and wealth. Developing a clear plan and staying realistic will help guide you through the process. You’ll need to understand tradeoffs to ensure you’re two goals don’t end up competing against each other. It’s even possible to lower risk by investing in fixed-income options, like municipal bonds.

Ultimately, impact invest is a personal affair. Your goals will be tailored to what you deem important to you. Research your options, consult financial experts before embarking on your next investing journey, and remember to keep in mind the impact you wish to have so you won’t get discouraged when you encounter obstacles. Impact investing isn’t for everyone, to be sure, but with a few investing strategies to assist you and a bit of patience, you should be able to accomplish your goals.

# 11 Things You Need To Know About Bitcoin

The cryptocurrency has had a tumultuous existence so far.

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Even the most tech savvy among us have a hard time wrapping their heads around Bitcoin. It’s a hot topic and a frequent point of discussion among investors, entrepreneurs and stock traders, so you should want to know all about it.

For starters, here’s an overly simplified explanation of Bitcoin: It’s a digital currency (there are more than 800 now) that isn’t controlled by a central authority such as a government or bank. It’s created by “miners,” who use computers and specialised hardware to process transactions, secure the currency’s network and collect bitcoins in exchange. Supporters say it allows for more secure transactions over the internet. That’s in part due to blockchain, a technology that records cryptocurrency transactions chronologically in a public digital ledger.

Bitcoin is only eight and a half years old, but it’s the oldest and most highly valued cryptocurrency out there. In such a short time, it’s had a rocky and controversial history, but it’s also attracted a fair share of high-profile supporters.

Related: 6 Rookie Investor Mistakes You Must Avoid For Profitable Investing

Click through to read 11 bits about Bitcoin that will make you at least sound like you know what you’re talking about next time it inevitably comes up.

## The birth of Bitcoin

Starting point at 2008

The origins of bitcoin trace back to 2008, when its creator, who went by the pseudonym Satoshi Nakamoto, published a proof of concept for Bitcoin. The proof was then published to a cryptocurrency mailing list in 2009. Nakamoto left the project in 2010 and disappeared, but other developers picked up the work. Bitcoin’s birthday is Jan. 3, when Nakamoto mined the first 50 units of the currency.

## An elusive creator

No one really knows

The true identity of Bitcoin’s creator has never been confirmed. Newsweek claimed to have found Bitcoin’s creator in 2014, identifying Temple City, Calif, resident Dorian Satoshi Nakamoto. He has vigorously denied it. In 2015, an Australian entrepreneur named Craig Wright said he was Bitcoin’s creator, but he couldn’t produce the evidence to support his claim. Whoever Nakamoto is, that person is very rich, as the creator is estimated to have mined a million bitcoins in the currency’s early days.

## Very expensive pizza

We wonder what was on the pizza?

The first transaction involving bitcoin was reported on May 22, 2010, when a programmer identified as Laszlo Hanyecz said he “successfully traded 10,000 bitcoins for pizza.” As of Aug. 28, 2017, 10,000 bitcoins are worth about \$43 million.

## You can spend bitcoins

While it may not seem like it, people continue to use bitcoins to buy stuff. The largest businesses to accept the cryptocurrency include Overstock.comExpediaNewegg and Dish.

Related: Fintech: Fusing Finance And Technology

## Federal Bureau of Bitcoin

The banning of Bitcoins

At one point, the U.S. government was one of the largest holders of bitcoin. In 2013, after the FBI shut down Silk Road, a darknet site where people could buy drugs and other illicit goods and services, it took over bitcoin wallets controlled by the site, one of which held 144,000 bitcoins. Investors have been making a killing by bidding on government-seized bitcoins.

## A mountain-sized setback

Mt. Gox

In early 2014, Bitcoin suffered a devastating loss after the alleged hacking of Mt. Gox, a Japanese exchange. About \$460 million of the currency (in 2014 value) was stolen. It was the largest loss of bitcoins ever and raised concerns about how secure the currency was.

## The billionaires’ takes

Warren Buffett

Warren Buffett, perhaps the most famous investor in the world, was not so keen on Bitcoin one of the only times he addressed the currency. “Stay away from it. It’s a mirage, basically,” he told CNBC. “The idea that it has some huge intrinsic value is a joke in my view.”

Fellow billionaire investor Jamie Dimon, chief executive of JPMorgan Chase, had even stronger words about Bitcoin: “You can’t have a business where people are going to invent a currency out of thin air. It won’t end well … someone is going to get killed and then the government is going to come down on it.”

But not all billionaires are against Bitcoin. Mark Cuban has said its value is inflated, but he recently invested in a venture capital fund that backs cryptocurrency. Richard Branson, however, has spoken more optimistically about it.

Related: The Currency Revolution

## Wealthy twins and a smart teen

Cameron and Tyler Winklevoss

Other notable investors in Bitcoin include Cameron and Tyler Winklevoss (the Harvard-educated twins who sued Mark Zuckerberg claiming that Facebook was based on an idea they’d had). They invested \$11 million into Bitcoin in 2013, an amount said to be about 1 percent of all bitcoins in circulation at that time. The Winklevoss twins have been petitioning the SEC to create a bitcoin exchange traded fund. The agency rejected the idea earlier this year.

Another is investor and entrepreneur Erik Finman, who invested \$1,000 into Bitcoin when he was 14 years old and is now a millionaire.

## Celebrities want in

Ashton Kutcher

Celebrities have also expressed enthusiasm for the cryptocurrency. Actor and Goop founder Gwyneth Paltrow advises Abra, a Bitcoin wallet, and Ashton Kutcher, Nas and Floyd Mayweather have all invested in Bitcoin start-ups.

## Support from a big financial institution

Fidelity Investments

In August 2017, Fidelity Investments became a rare standout among financial institutions in embracing Bitcoin and other cryptocurrencies. The company allows its clients to use the Fidelity website to view their bitcoin holdings held through digital wallet provider Coinbase.

“This is an experiment in the spirit of learning what these crypto assets are like and how our customers may want to interact with them,” Hadley Stern, senior vice president and managing director at Fidelity Labs, told Reuters.

## A hard fork

Bitcoin Cash

On Aug. 1 2017, Bitcoin experienced what’s being called a “hard fork” as a result of a few issues, including the limited number of transactions that can be processed per second. Essentially, the cryptocurrency split into two, with Bitcoin Cash debuting.

Here’s how Rob Marvin of PCMag explains the situation:

“The Bitcoin fork speaks to a fundamental ideological rift over what’s more important: Preserving the decentralised nature and independent control of the Bitcoin network, or accelerating transaction speeds to make the cryptocurrency more viable for mainstream ecommerce and payments.” Bitcoin Cash allows larger blocks of currency and more transactions per second.

# 9 Warren Buffett Quotes That Will Teach You More Than Just Investing

While he is one of the most famous investors in the world, his expertise goes beyond money.

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## Check out these nine quotes on time, success, mindset and more

There’s more to learn than finance from one of today’s most famous investors, Warren Buffett. In fact, the businessman, financial guru and philanthropist can teach you a thing or two about life. From taking risks to coping with change, Buffett’s expertise that expands far beyond stocks and dollar signs.

From a young age, the billionaire investor was destined for success – selling garbage bags to neighbors and delivering newspapers. By age 15, Buffett was already worth thousands of dollars and investing in real estate.

However, fast forward nearly 70 years and the “Oracle of Omaha” is now worth a whopping \$77 billion, according to Forbes, making him currently the second richest person in the world (behind only Bill Gates). There’s much to learn from Buffett too.

Related: 5 Worthwhile Investment Lessons I Learned From Warren Buffett

## On time

Warren Buffett

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.” – Warren Buffett

## On risk

Warren Buffett on risk management

“I don’t look to jump over seven-foot bars: I look around for one-foot bars that I can step over.” – Warren Buffett

## On change

Be the change you want to see in the world

“The most important thing to do if you find yourself in a hole is to stop digging.” – Warren Buffett

Related: 5 Things Warren Buffett Does After Work

## On success

What you need to know about success

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett

## On empowerment

Image Credit: Art Streiber

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” – Warren Buffett

## On opportunity

When looking for an opportunity…

“You do things when the opportunities come along.” – Warren Buffett

## On mindset

Mindset management

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

Warren Buffett

“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett

## On motivation

Look for motivation

“Predicting rain doesn’t count. Building arks does.” – Warren Buffett