A lot of investors talk about the magic of compounding, and there’s a good reason for that!
Compound interest is an investor’s best friend. Compounding is simply when the money you earn starts earning money. This means your stash is growing faster than if you were simply adding a lump sum every month.
So many people say “I can’t afford to start investing.” The truth is, you can’t afford not to start investing, because time is the issue here, not money. Compound interest is the real silver bullet when it comes to growing your wealth and the earlier you start, the more powerful it becomes.
- Compound interest is when the money you earn starts earning money.
- Compounding is the easiest way to become wealthy.
- The sooner you begin investing, the more time your earnings have to compound.
A certificate of deposit (CD) or a government bond over time might give you 5% per year. A 10% annual return is the historical average for the stock market. And 15% is what you could get if you learn how to pick your own stocks and take advantage of the skills MyWallSt teaches.
The majority of people subscribe to some form of online entertainment service like Spotify Premium or Netflix – a lot subscribe to both. The $18 leaves our bank accounts every month and we hardly even notice.
Let’s say at 18 years old, you subscribe to both services and remain a loyal customer for the next 50 years. You’ll end up retiring $10,800 down. “Small price to pay for being able to binge watch Breaking Bad,” I hear you say.
Had you stuck that $18 into a savings account instead you’d have that $10,800 when it comes to retiring, plus some interest. Of course, inflation will have eaten up a huge chunk of that, so it’s hardly worth giving up the comfort and convenience of your subscription accounts.
Had you invested that money, after year one, on average, you’re up 10% on your original investment. The year after, you make interest on your interest and so on. It’s like adding successive layers to a cake with each a little larger than the last. So if you’d consistently invested that money, after 50 years it would be worth over $300,000.
Still think you can’t afford to start?
Want to know more about compounding?
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.