latteWhen you haven’t got much capital of your own, the road to financial security can seem long, hard and complex. But the truth is that wealth building is relatively simple. All it takes is time and the price of a cup of coffee.

A son of a friend just graduated from university. Still in his early 20s and with student loans to pay off, Rob has hardly any savings or capacity to save much at all.  So Rob and I met for coffee and a chat. He had acquired a taste for lattes while studying and working nights in London.

“How much do you spend on lattes each week?” I asked him. After thinking for a moment, he replied that he averaged about two cups a day, each costing £3. That equated to about £40 a week or £160 a month.

“Well, what if you sacrificed the coffee and put the cash into an investment plan instead?” I suggested. Rob looked doubtful. Kicking caffeine wouldn’t be easy. Besides, he couldn’t imagine that loose change spent on coffee would make much difference to his long-term financial position.

I dealt with this challenge by telling him about the miracle of compounding.

With an initial balance of £100, a monthly contribution of £160 and a yield of 5%, his coffee money would gradually accumulate to a pool of a quarter of a million pounds by the time of his retirement. And this was without saving another penny.

Assuming Rob’s salary was to rise on his graduation, he might bump up that monthly contribution to £500. In this case, his investment portfolio would grow to three quarters of a million by his retirement. And this was a conservative estimate.

This sounds too easy, he said. That’s because it is easy, I replied. The interest he earned on his investments was paid into his account and included in the next calculation. So he was earning interest on interest.

The key was that firstly, he was starting early. Secondly, he was saving a small amount consistently month after month. Thirdly, he was exercising patience. The rest of it was just the effect of time and compounding.

Rob now refers to his savings plan as his’ latte portfolio’. The initial pain of kicking his expensive caffeine habit was made up for by the slow roast of an investment portfolio that promised him a comfortable retirement.

Even for those of us much older than Rob, there are lessons here. We tend to underestimate the effect of gradual investing and patience in building wealth, just as we tend to over-rate gimmicks promoted in the media.

We can’t control the ups and downs of markets or the daily noise of the media. We can control our own behaviour. With slow and steady investing, and a trusted financial adviser to keep us disciplined, there is no reason we can’t succeed.

Now enough of this talk about money. If you would like a coffee and a second opinion about your investments, the coffee’s on me.  Get in touch at or call 01425 279212.

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