How Compound Interest Works in Investing
How compound interest works is actually very simple.
Let’s say you have an investment that gives you a return of 20 percent in interest every year.
For example you invest $100 in the stock market.
So in the first year your investment will grow from $100 to $120.
This means you’ve made $20 in profit.
Now instead of taking out the $20 profit.
You decide to keep investing it so your investment is now worth $120 in the second year.
Your investment will continue to grow by 20 percent this time from $120 to $144.
So you’ll make a $24 profit in the second year of investing.
The key to compounding lies in the fact that returns on an investment are reinvested as they’re earned.
This is what differentiates that compound return from the simple return.
If you keep reinvesting your money you’ll make more and more profits every year.
If you start saving and investing $300 a month today and grow your investments, by a very attainable return of 10 percent per year from the stock market.
You can easily build a net worth of $1 billion or more if you start saving and investing a thousand dollars a month today.
And if you do it the right way I guarantee you sooner or later you’ll be a Millionaire.
And if you’re making a lot of money maybe you’re running a business or you’re having a good job.
Just try to invest as much as you can.
If you save and invest $5000 a month with the same rate of return of only 10 percent, you can turn your investments into 17 million dollars in 35 years.
In fact the more money you save to invest, the faster you’ll achieve your financial goals.
If you think that thirty five years is too long.
Just think about it for a second.
Everything takes time and no matter what you’re doing you can not achieve great results overnight.
Looking at Warren Buffett the world’s most successful investor. He once said I made my first investment at age 11.
Since then Warren Buffett’s been investing his money for over 75 years.
It took him 75 years to become the richest investor in the world.
You know it’s totally worth it.
As you can see making money takes time.
Investing takes time and creating real wealth takes time.
So forget about how long you’ll invest your money for just put in the work and start investing as early as possible.
Now you see the importance of investing in creating wealth, you just need to invest a small percentage of your income and you can build a more satisfying retirement.
Create a better financial life and have an abundance to care for your family and accomplish your dreams.