How does money grow?
As you may expect, sadly money doesn’t grow on trees. On the bright side, your money can grow even faster than any old evergreen from one simple method: Interest.
What is interest?
Okay sure, everyone is interested in growing their money, but that’s not the type of interest we’re talking about. What I’m referring to is the way your family’s money can grow exponentially through smart investing.
Now, how does this really work? Well, let’s say you lend someone 10 books for a year and they promise to return your 10 books plus an additional book at the cost of them borrowing your stuff. That is interest, and more specifically, the yearly rate as interest is 10% since you get one book back for every 10 you save.
Yes, interest is AWESOME, but it gets even better. Compound Interest is where you can really grow your money.
What is compound interest?
What is compound interest you may ask? Well, it is easily described as just interest-on-interest. Let us show you:
Now, you lend someone 100 books a year, at the same 10% annual interest rate. After the first year, you have a total of 110 books, receiving 10 of those from interest. The next year, instead of receiving 10 extra books again you actually receive 11, since that 10% rate now applies to your total of 110 books.
Do you see how this works? The annual interest actually adds onto the interest from before, which is compounding. After just 20 years of lending your 100 old dusty books at that same interest rate, you would have a new total of 672 books!
Why does this matter?
Okay, now we think we’re ready to talk about these ideas with real money. Compound interest is the BEST way to accumulate wealth not only for yourself, but for your family.
Let’s take a 20 years old. If their parents had decided to invest $10,000 into the standard stock market index (S&P), an average annual return of about 8.6% would have compounded into $52,000 today (dividends reinvested)!
And that’s only the benchmark! Hundreds of stocks outperform the S&P, all you have to do is research and plan.
Moral of the story…
The power of compound interest is definitely something YOU should consider to build generational wealth!
Although your kids might be upset you didn’t start sooner, it is never too late to start your invstr portfolio!
Start compounding your savings TODAY!
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
