The best long-term investor’s friend is called compounding, and it can certainly make you rich!
I never cease to be amazed by the power of compounding in an investment program!
Indeed, seeing literally pocket change become millions over time is truly a remarkable thing!
Here’s the story of an ancient Athenian merchant entrusted with a large sum of money to establish a trust fund to run for 2,000 years.
This Athenian pocketed all the money except a single Drachma, which he invested in Athenian government bonds paying 3 percent compounded annually.
He didn’t live long enough to see the results, but after 2,000 years that Drachmae wound up being worth more than all the assets on the Earth!
When it comes to investing, compounding means that you can earn interest on your principal, as well as on any other interest you may have ccumulated.
Getting started with investing as early as possible can make a big difference in how much wealth is ultimately accumulated.
The benefits of saving early in life are greatly magnified by compounding.
In this process, the growth of an investment’s value is computed on the sum of the original investment, including the assumption that dividends or interest are reinvested in the same asset.
Overall, the power of compounding can make assets grow much faster.
Money goes to Money…
Because compound interest is a really marvellous invention. – Albert Einstein (1879 – 1955) called it the 8th Wonder – It can work for you, or against you. When you invest it works for you. When you borrow it works against you!
You can become financially secure by winning the lottery.
The surer way is to save money, invest it and…
Let it compound!
The Rule of 72
To be able to do compound interest problems in your head, the Rule of 72 gives you a lightning fast benchmark to determine how good (or not so good) a potential investment is likely to be.
The rule of 72 says that in order to find the number of years required to double your money at a given interest rate, you can just divide the interest rate into 72.
For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and get 9 years.
The rule of 72 is remarkably accurate, as long as the interest rate is less than twenty percent.
You can also run it backwards.
If you want to double your money in six years, just divide 6 into 72 to find that it will require an interest rate of about 12 percent.