Updated: May 9, 2021
We’ve all heard the phrase “Time is money.” But what do these two things actually have to do with one another?
German Nande explains the math behind interest rates, revealing the equation that will allow you to calculate the future value of your money.
Applying the formula to investments
Most investments have historical performance data, which you can use to calculate the time value of money.
Applying the formula given in the video will help you determine if that particular investment can help you achieve your financial goals.
For example, at present the compounded annual growth rate of the Philequity PSE Index Mutual Fund for the past 10 years has been 16.31% – we can use this number to compute the time value of money.
This means, if you invest P100,000 in it, and assuming the same performance of the fund, then your investment will be worth around P453,075.47 after 10 years.
The given formula, and doing such calculations, will come in handy when you are planning and managing your investments. So learn it by heart.
I hope this simple lesson on the time value of money has helped you become a little smarter when it comes to investments.