Understanding the principle of compound interest is a life-changing discovery. Compound interest is the reason investments are so effective. To understand the principle, you can think of it as your money growing at an ever-increasing rate. In this phenomenon, some initial amount of money grows by a certain interest rate. Then this initial sum of money grows further – but on top of the interest you’ve earned. So, you get interest not just on your initial amount, but also on the interest that you’ve gotten from it. This means exponential growth of your money. Put simply, your money grows faster and faster with time! That’s exactly what happens when you invest, and that’s also the reason why there’s so much power in investing.
Here’s an example:
Initial amount of money: 1000 euros
Annual interest or return: 5% (that’s the percentage your money grows by each year)
Year 1: Return = 50 euros
Sum of the initial amount plus return: 1050 euros
Year 2: Return = 52.50 euros
Sum of the initial amount plus return over two years: 1102.50 euros
Take a guess at how much these 1000 euros will be worth after several years!
After 10 years…1629 euros
After 20 years…2653 euros
After 30 years…4322 euros
Just imagine what happens if you invest more each month. If you save and then use your savings to invest, that’s more money that will grow exponentially!
Money secret No. 8: Compound interest is unbelievably sexy! Don’t miss out on all the fun – get started ASAP!
We want you to have a very good understanding of the effect of compound interest. If you still have questions, feel free to ask! email@example.com