We’ve heard it time and time before: start investing as early as you can. But why? Here we explain why the power of compounded interest will make you think twice about delaying those investment decisions and will make you want to set up your investing account today.
One of the interesting key trends of self-made billionaires here on the iBillionaire platform is that they start investing when they are very young. Take Ray Dalio as an example: he picked his first stock when he was just 12 years old! (Learn more here about how Dalio went from mowing lawns to a wealth of over $15 Billion)
Ray Dalio picked his first stock when he was just 12 years old!
If you’re reading this, you’re probably already a little older than 12… but don’t worry, it’s not too late to get your foot in the game! The earlier you start with saving your money, the earlier you can start to take advantage of compounding.
Compounding is often best explained with an example. Let’s say you take a penny and decide to double it every day for a month. How much do you think you would end up with? A hundred dollars? A thousand? How about a million? You’re way off!
If you take a penny and double it every day for 31 days straight, you’d end up with a whopping $21,474,836.48! That’s right, over $21 million in just one month! That right there is the power of compounded interest.
We know that it’s pretty impossible to consistently get 100% returns like the penny example above, so how much in returns on your invested capital should you expect?
According to stock market historians, if you go way back to the beginning of the 20th century, the average ROI of the market has been about 10 percent. (Interestingly from 1950 to 2000, the returns were even higher – around 13.2 percent for the 50 year period!)
With compound interest, the great thing is that it starts working straight away. The second year, you’re already making more interest than the first year. The third year more than the second, and so on. As a result, your investment snowballs and becomes bigger and bigger every year. This is where the name comes from: the growth builds up … or is compounded.
One sure-fire way of building up a portfolio is by making investing a habit. A little chunk here, a little chunk there. It may not seem like much now but think of the potential. Little chunks add up when you are diligent and invest over a long period of time and with the power of compounding, you can really start to see your savings grow. Stop putting it off – start with a little, build up a lot!
Remember, the earlier you start with compounding interest, the better. Set your account up today!