WHAT IF I STARTED WITH $20,000?

I have a lot of children of clients who come to me with the question of what they should do with their $20,000 in savings. My advice generally is to ensure they keep a small cash buffer for personal expenses and maybe use those funds to invest in a simple index fund. For example, the Vanguard High Growth Index managed fund has returned 13.10%pa over the past five years with a management fee of 0.90%. Since inception the fund has returned 7.02%pa. Thus, we would achieve $50,000 in eight to 14 years based on the returns since inception and over five years.

A basket of exchange traded funds that cover both the Australian and international markets would provide a similar result. Once you achieve around $50,000 to $75,000 in wealth, I would then look at purchasing a direct investment property with around 80% gearing to really start to make your capital work for you.

At the end of the day, it is how much capital you can get working for you that will make you wealthy – not the return. Property is great for leverage to get more capital working for you. Most of my wealthiest clients made their money from property investing and/or by establishing and growing their own business (a form of private equity). None of my clients made millions from currency trading, share investing or playing with derivatives.