Compound interest. Its name alone does not express the value that this can provide and how it is arguably the most important factor in determining the success of your future investments.
What is compound interest?
Recently, we talked about setting a long term goal of generating a monthly income from your investments. This sounds like a pipedream to most people and that’s why it’s first of all important that you realize that this is tangibly possible. The power of compound interest (earning interest on interest that you have already received) means that by taking a long term view with your investments you open the doors to a huge potential increase on your monthly cash flow and initial investment.
Let’s take a look at an example.
The table below provided by the Calculator Site shows just how powerful compound interest can be, showing an initial deposit of €10,000, a regular deposit of €200 per month and an interest rate of 9% per annum – after 5 years the annual interest you receive will be more than your annual deposits.
Now let’s say you’re a smart investor and you have an ultra-long term view, e.g. for your retirement. Based again on a €10,000 starting investment and a regular deposit of €200 per month over 30 years. We will only include years 20 – 30 below, but you can do the same calculation yourself on the Calculator Site if you want to see it in more detail.
Incredible. So 30 years down the line your initial deposit of €10,000 and monthly deposits of €200 are now generating you an annual income of €44,174.45 in interest alone, not to mention the fact that you’ve saved over half a million euros and you’ve accumulated a total of €434,200.57 in interest.
Don’t wait, start now.
So, we’ve seen how it IS possible for your money to generate a significant monthly income for you, quite literally while you sleep and leave it to go to work for you. One of the biggest regrets we hear from seasoned investors is ‘I wish I’d started earlier’, and now you know why.