To Create Wealth With The Extraordinary Power Of Compound Interest
The power of
compound interest is there for all to see. Over time an initial
investment grows at a rate of interest, and then you can reinvest the
principal amount and the interest that you have made to make even more
It is one of
the best ways to build your wealth. The simple definition of
compounding is where an investment that you make will create earnings
for you. You will then be able to re invest those earnings so that
they generate their own earnings.
It really means
that you will earn interest on interest. This is how to earn even more
money from your investment. You have an initial amount of say $5,000.
You invest at a rate of interest of 5%. At the end of year 1 your
earnings will be $250. You reinvest the principal $5,000 and your
earnings of $250 and at the end of year 2 you have $5,512.50.
Now you might
say that you have only earned an additional $12.50 from this deal. But
the magic of compounding is the time that you keep reinvesting. For
the same amount over 20 years you would earn $13,266.40 which
represents a gain of 165.33%
As long as you
do not touch the principal amount invested it will grow every year.
Make sure that you go for compound interest deals rather than simple
interest deals. With a simple interest deal you only earn on the
principle each year. With compound you earn on the principal and the
previous interest earned.
to Invest Money to make Money
about being in for the long term. Yes there are some short term ways
to make money but compound interest isn’t one of them. It is best to
start investing money into a compound interest account as early as
possible. The longer your money is in this type of account the more it
You need to
find out how your money will compound with the different types of
investments. For a savings account your profit would be your interest
income and if you invested in stocks then any dividends or capital
gains would be your profit.
Find out just
how long you can leave your money in an account to compound. Go for
the longer term options here as you will make more money. Also be
aware of your tax liabilities. There will almost certainly be taxes
that you will have to pay on earned interest. There are tax advantages
for investing in investment vehicles such as 401k’s and individual
retirement accounts (IRA’s) such as SEP IRA’s, Roth ORA’s and
If you want
higher rates of interest then you need to think about any risks
involved. You will have no doubt heard the term “no risk no
reward” and this certainly applies to returns on investments. With
some compounding schemes there is a risk that rates could fall when
you are looking for higher returns.
a Monthly Investment Plan to Supercharge your Wealth
that you make an initial investment of $10,000. If you were to then
invest an additional $100 per month you will really harness the power
of compounding to supercharge your wealth.
At a 6%
compound interest rate you would have $34,582 after ten years with a
$10,000 initial principal and then $100 a month after that. In twenty
years this would be at $79,306. If you stick it for thirty years you
will have made a total investment of $46,000 and your final compounded
amount will be $160,677.
Even if you
don’t have an initial principal sum to invest you should still save
smaller amounts each month in a compounding account. If you can save
$100 a month without the principal then after thirty years you will
have saved $36,000. At 6% compound interest you will be looking at
more than a $100,000 yield.
If you think
that the concept of compound interest is simple then you are right. It
is simple. You just need to give it time to work in the best way for
you. If you have several years in front of you then start to invest as
early as possible. The best time to invest is when you are young, but
if you are not young then the best time to invest is right now.
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