Why must there be risk? Chasing compound growth!
Compound growth is the main reason we take risk.
"Would you rather have $10,000 per day for 30 days or a penny that doubled in value every day for 30 days?"
The answer is to choose the doubling penny, because at the end of 30 days, you would have about $5 million versus the $300,000 if you chose $10,000 per day.
Compound interest is often ignored or classed as marketing hype used to sell investments, but in reality it is the most valuable investment tool there is. Perhaps people do not understand the fact that it requires a great deal of time and patience to actually benefit from using compounding. The fact is put away a small amount of your income every month into equities, and after 20 years you will have a sizeable return.
It is clear that turning a penny into £5 million over 30 days does take the idea into the fairytale realms but the principal stands. The best part about compound interest is that it applies to money, and it helps you to achieve your financial goals, such as becoming a millionaire, retiring comfortably, or being financially independent.
The Components of Compound Interest
A dollar invested at a 10% return will be worth $1.10 in a year. Invest that $1.10 and get 10% again, and you'll end up with $1.21 two years from your original investment. The first year earned you only $0.10, but the second generated $0.11. This is compounding at its most basic level: gains begetting more gains. Increase the amounts and the time involved, and the benefits of compounding become much more pronounced.
A simple way to know the time it takes for money to double is to use the rule of 72. For example, if you wanted to know how many years it would take for an investment earning 12% to double, simply divide 72 by 12, and the answer would be approximately six years. The reverse is also true. If you wanted to know what interest rate you would have to earn to double your money in five years, then divide 72 by five, and the answer is about 15%.
Compound growth is the main reason we take risk.
"Would you rather have $10,000 per day for 30 days or a penny that doubled in value every day for 30 days?"
The answer is to choose the doubling penny, because at the end of 30 days, you would have about $5 million versus the $300,000 if you chose $10,000 per day.
Compound interest is often ignored or classed as marketing hype used to sell investments, but in reality it is the most valuable investment tool there is. Perhaps people do not understand the fact that it requires a great deal of time and patience to actually benefit from using compounding. The fact is put away a small amount of your income every month into equities, and after 20 years you will have a sizeable return.
It is clear that turning a penny into £5 million over 30 days does take the idea into the fairytale realms but the principal stands. The best part about compound interest is that it applies to money, and it helps you to achieve your financial goals, such as becoming a millionaire, retiring comfortably, or being financially independent.
The Components of Compound Interest
A dollar invested at a 10% return will be worth $1.10 in a year. Invest that $1.10 and get 10% again, and you'll end up with $1.21 two years from your original investment. The first year earned you only $0.10, but the second generated $0.11. This is compounding at its most basic level: gains begetting more gains. Increase the amounts and the time involved, and the benefits of compounding become much more pronounced.
A simple way to know the time it takes for money to double is to use the rule of 72. For example, if you wanted to know how many years it would take for an investment earning 12% to double, simply divide 72 by 12, and the answer would be approximately six years. The reverse is also true. If you wanted to know what interest rate you would have to earn to double your money in five years, then divide 72 by five, and the answer is about 15%.