Most people want to be an investor
But most investors dont understand compound interest
Here’s how compound interest will change your life:
But most investors dont understand compound interest
Here’s how compound interest will change your life:
1/ The power of compounding interest cannot be overstated.
It is a financial phenomenon that has been a key driver of investors success over the years.
Let me explain the concept and its implications through a series of examples.
It is a financial phenomenon that has been a key driver of investors success over the years.
Let me explain the concept and its implications through a series of examples.
2/ Suppose you invest $10,000 in a stock that generates an average annual return of 10%.
At the end of the first year, your investment would grow to $11,000.
The magic happens in the following years when the interest starts compounding.
At the end of the first year, your investment would grow to $11,000.
The magic happens in the following years when the interest starts compounding.
3/ In the second year, that $11,000 would earn an additional 10%, resulting in a total of $12,100.
In the third year, it would be $13,310, and so on. Over time, the returns on your initial investment snowball, creating a remarkable compounding effect.
In the third year, it would be $13,310, and so on. Over time, the returns on your initial investment snowball, creating a remarkable compounding effect.
4/ Now, let’s fast forward 20 years.
That initial $10,000 investment, compounding at an annual rate of 10%, would have grown to an impressive $67,275.
Imagine the growth potential when we extend the timeline to several decades or even a lifetime
That initial $10,000 investment, compounding at an annual rate of 10%, would have grown to an impressive $67,275.
Imagine the growth potential when we extend the timeline to several decades or even a lifetime
5/ Another example to illustrate the power of compounding: consider two investors, Alice and Bob.
Alice starts investing $5,000 per year from age 25 to 35, and then stops contributing.
Bob, on the other hand, starts at age 35 and invests $5,000 per year until age 65.
Alice starts investing $5,000 per year from age 25 to 35, and then stops contributing.
Bob, on the other hand, starts at age 35 and invests $5,000 per year until age 65.
6/ Despite Alice investing for only 10 years while Bob invests for 30 years, due to the advantage of time and compounding interest, Alice ends up with more money at age 65.
Her investments had more time to grow and compound, outweighing Bob’s additional contributions
Her investments had more time to grow and compound, outweighing Bob’s additional contributions
7/ This example underscores the importance of starting early.
The sooner you begin investing, the more time your money has to harness the power of compounding.
Time can be a greater ally in building wealth than the amount of money you invest
The sooner you begin investing, the more time your money has to harness the power of compounding.
Time can be a greater ally in building wealth than the amount of money you invest
8/ The key takeaway here is the longer you stay invested, the more pronounced the compounding effect becomes.
Patience is an essential virtue in the realm of investing.
Don’t be swayed by short-term fluctuations; focus on the long-term growth potential
Patience is an essential virtue in the realm of investing.
Don’t be swayed by short-term fluctuations; focus on the long-term growth potential
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