The incredible answer is R87.7 million!

Albert Einstein is purported to have once remarked that the most powerful force in the universe is compound growth.

My favourite example of the power of compounding is this:
The Emperor of China was so excited about the game of chess that he offered the inventor one wish. The inventor replied that he wanted one grain of rice on the first square of the chess board, two grains on the second square, four on the third and so on through the 64th square. The unwitting emperor immediately agreed to the seemingly modest request. But two to the 64th power is 18 million trillion grains of rice - more than enough to cover the entire surface of the earth. [The clever inventor did not gain all the rice in China; he lost his head.]

Imagine for a moment that back in 1975 your grandparents invested R10 000 for you. If the fund earned the average rate of return of the All Share Index, how much money would you have today from that initial R10 000 investment? The answer is R4 million!

Approximate Monthly Income available from the investment in today's terms: R23 333.33

Although compounding is referred to humorously as the eighth wonder of the world it is not the answer to building long-term wealth. To maximise benefit from the power of compound interest one needs to be investing in a portfolio that yields its performance from the fact that the portfolio is actively managed. The difference between the portfolio selection and benchmark return is known as the active return.

Similarly then, if your grandparents had invested in a share portfolio managed by Allan Gray, one of the companies we review, the incredible answer would be R87.7 million!

Approximate Monthly Income available from the investment in today's terms: R511 583.33

Silke Financial Services uses a unique Fund Approach when advising clients to invest in funds with either full equity exposure or moderate [balanced] funds. The rationale behind the Fund Approach may be summarised as follows:

• Utilising our Fund approach gives us the research capacity to perform due diligence on portfolio managers based on fund manager style and skills, making use of their contrarian market views. In this way clients stand the best chance to add Alpha to their returns over time due to sound diversification of the portfolio without diluting returns.
• By utilising companies who seek to earn superior long-term returns on behalf of their clients, without assuming above average risk. To achieve this objective top fund managers invest in assets that are believed to offer superior fundamental value.
• It is Silke Financial Services' experience that investments based on this 'value approach' not only offer above average returns over the long-term, but also less risk of loss. Reputable companies such as Allan Gray, Investec, Nedgroup Investments, Foord Asset Management and PSG determine whether an asset offers superior fundamental value by comparing the price of the asset to its intrinsic or underlying value. Assets that trade at prices significantly below intrinsic value are considered to be attractive. Conversely, those trading well above intrinsic value offer unattractive long-term returns.

Over time the intrinsic value of any growth asset should appreciate as earnings, dividends and net assets grow. In the short-term, prices move around intrinsic value as market sentiment swings from optimism to pessimism. By investing as close to the point where the price is discounting the greatest pessimism, not only is the potential return maximised, but the 'margin of safety' is greatest, as the extent to which the price can fall further is minimised.

Here at Silke Financial Services we are constantly applying our Fund Approach and actively partnering with reputable companies accordingly. We therefore heartily endorse Allan Gray's view that most investors would benefit from the advice of an independent financial adviser before making any investment decisions.

Silke Financial Services offers advice on funds at all levels of risk. We research the market in order to find the most appropriate funds at all risk levels.