Power of Compounding Interest!

Have you been always wondering how to make your money work harder for you? This post will definitely benefit you by telling you how compounding interest can make your money work harder for you.

1. What exactly is Power of Compounding Interest

Compounding Interest allows you to earn returns on investment, with the returns is then reinvested back to earn additional returns. This means it definitely helps your principal to accumulate! This definitely forms an exponential payoff to your portfolios as the returns generate more and more money.

In layman terms : 
It means the time you start saving will outweigh the amount you save. 

Just like how an investment left untouched for a period of time can also accumulate to a large sum even if you never invest any money in.

Otto will share with you the power of compounding interest today! Lets take a look below:

Here's an example (How the Power of Compounding Interest Works!)

>> Apple, Belson, and Chris are peers of the same age

>> All experiencing the same 7% annual investment return.

>> A comparison of how the time and frequency they save will affect the returns for their retirement planning.

>> All investing $5000/annually

	Alice	Belson	Chris
Start Investing	Age 18	Age 28	Age 18
Stops Investing	Age 28	Age 58	Age 58
Total Years Invested	10 Years	30 Years	40 Years
Total Invested	$50, 000	$150,000	$200,000
Amt @ Age 58	$602,070	$540,741	$1,142,611
Total Earned	$552,070	$390,741	$942,611

Conclusion [For the table above]

Apple who invested 3 times lesser than Belson still managed to earn more than him. She only saved for 10 years while on the other hand, Belson saved 30 years. This is the power of compounding interest.

Reason why is because the investment return that Apple have earned in her early 10 years has start to snowball such that Belson can't even catch up even if he saved 20 years more. 


However, Chris shows the best example of how consistency and starting early plays a part to the astounding savings growth. 
 

Starting Early and taking advantage of the magic of compounding interest is one way to easily accumulate wealth. It can never be too early/ too late to start investing. However, starting to save now can provide you with a lighter load when it comes to retiring.

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