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Many clients have often asked Amit Trivedi what the formula to make money is and he has one simple answer – the compound interest equation which was taught in grade 7 math.
The equation has three variables on the LHS – money invested, time staying invested and rate of return. An investor has a significant amount of control over the first two variables, and yet most discussions are centred around the rate of return – something they have zero control over.
He explains that discussing ‘r’ the rate of return can make for interesting conversation but one shouldn’t make it the centre of their investment strategy. He points out that investors are often so focused on the ‘r’ of returns that they don’t realise the ‘r’ of risk gets maximised in the process. If the thinking is reversed and they focus on ‘r’ as risk, the returns will automatically follow, as they will if the focus is kept on money invested and time invested.
