Tuesday 23 February 2021
Here are 3 key concepts, 2 key resources, and 1 key action, to help you understand the compounding, and get you started investing.
Since the creation of the first company, nothing has created more wealth for more people than investing in companies. A lot of this is due to the awesome power of compounding.
- What is compounding?
Compounding is an amazing, and surprisingly easy, process used for wealth creation. It’s where the earnings from your shares (dividends or capital growth), are reinvested, year after year, to generate additional earnings and growth.
- The benefits of time
Don’t wait to invest, invest and then wait.
Compounding becomes more powerful the longer you can wait, and stay in the markets. Therefore, the earlier you start, the more chance you give yourself to let compounding do its thing.
Let’s take an example to see the benefits of time. If you were to invest $100, and it grew 10% per year:
– after 5 years, you will multiply your money by 1.6 times to $161
– after 50 years you will multiply it by more than 117 times to over $10,000!)
- The ultimate compound machine
Over the past 40 years, the Australian market has averaged 11% growth per year and the US market has averaged 12% growth per year.
If you’d invested $1000 in Australia in 1980, by 2019 it’d be worth $71,800!
If you’d invested $1000 in the USA in 19080, by 2019 it’d be worth $86,984!
By leaving that $1000 in the markets, and not selling, even when the 2000 tech bubble burst or the 2008 global financial crisis hit, you can see the power of compounding. By nothing other than being patient, you can generate exponential wealth over a long period of time.
So get started now!
- For a visual guide to compound interest, check-out this short and simple video, from our friends at Rask Australia
- To see how your savings and investments could compound over time, have a play with this calculator. Get inspired!
P.S – here’s a bonus video of billionaire investor Hamish Douglas, explaining the power of compounding
Just get started!
We hope you understand the importance of time. The longer you can be in the markets, the greater the impact compounding can have. So, stop waiting to invest. Invest, and then wait.
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