The importance of continuous savings combined with compound growth

Posted on 19 August 2013 by Douglas Chadwick

I have just been reading about the success of the Norwegian Sovereign Fund. Back in the seventies when North Sea Oil started to be developed the Norwegians put the revenues from the oil into the hands of an organisation made up of a bank and business men. They were tasked with building a fund that would benefit the future prosperity of all Norwegians. The British however put the oil revenues into the hands of politicians. The Norwegian Sovereign Fund now has a value of $760 billion and makes the Norwegians the wealthiest people on earth. It pays for their pensions, health and old age needs whilst lowering their taxes. The British on the other hand have none of these benefits. In contrast we have huge debts and make massive payments in benefits to anybody who holds out their hand. Fracking has now come onto the scene and guess which nation is grabbing this latest gift from nature with both hands. Well, it is not the British. Even with all the nation`s financial problems we would rather spend £80 billion on a high speed train system than seize and concentrate our efforts on a God gifted chance to address some of our debt. Not so the Norwegians who see yet another chance to secure the financial future of their people. They have seen the effect that the benefits of fracking have had on the American economy and they want more of the same. What is it about the British thought process that makes saving and self- reliance so low on our list of priorities? Surely we should be teaching the importance of these things in school but how will this go down with the Teaching Unions? Which of our politicians has the knowledge and understanding of compound interest to realise that it really is true “That great oaks from little acorns grow.”? The simple example of a saving plan should be compulsory learning. A person saving £1000 a year at 8% growth is worth £15600 at ten years, £49400 at twenty years, £122300 at thirty years and £279700 at forty years. This would be their retirement fund and it has been self- generated. You can be sure that the Norwegians understand this principle but what a shame that the British do not. It is the prime moving principle of the Saltydog Investor.