Ms. Practical Thinker and Ms. Extensive Spender have been best friends since childhood. As best friends, they shared a love for travelling. The two even made a bucket list of the places they wanted to visit. London was at the top of their list.
After graduating from college, the two began earning their own money. They would travel every two years, crossing out an item in their bucket list.
When they reached 30, Ms. Practical Thinker realized that not much was happening to her earnings. She decided to start investing Php 20,000.00 annually for the next ten years. Meanwhile, Ms. Extensive Spender simply kept her money in the bank.
Soon, the consequences of their different approaches to growing their money became evident. On a trip to Thailand, Ms. Extensive Spender had to borrow money from her sister while Ms. Practical Thinker used the gains from her investments to fund her trip. Embarrassed by what happened, Ms. Extensive Spender realized that she could no longer depend solely on her salary to cover all of her expenses.
And so Ms. Extensive Spender finally started investing. She decided to invest Php 50,000.00 annually and continued to do so for the next ten years. Meanwhile, Ms. Practical Thinker made her last annual payment.
With both ladies now practicing the habit of saving and investing for the future, they are more than ready to make their dreams come true. After a decade of investing, Ms. Extensive Spender finally went to London with Ms. Practical Thinker. But they were not at the same place financially. Ms. Practical Thinker was able to complete their bucket list with ease. In fact, Ms. Extensive Spender ended up investing more and receiving a lower return compared to Ms. Practical Thinker. How is this so?
Assuming we take Compounded Annual Growth Rate (CAGR) since inception of 11.57% of the Sun Life of Canada Prosperity Balanced Fund*, how much will each of their investment be? Let's take a good look at the figures below.