Compounding power of the investment

Congratulations to me on the launch of the very first newsletter!

Let us have fun together as we escape the 9to5 grind!

Today's topics include:

1. The power of compounding interest on the investment

2. Financial independence became more important in 2023 - why?

3. Meme of the week

4. Quote of the week

The power of compounding interest on the investment

I am ONLY interested in actions that are effective, produce results, and get you where you want to be.

Compounding interest on your investment is definitely one of the fundamental steps to financial independence, personal freedom, and wealth, but it requires patience and marathon-like discipline. This topic has been covered many times over. Hence, I want to focus on three elements of compounding interest with visuals, as a picture is worth a thousand words. 1) Start investing as early as possible and don’t stop. 2) Most significant gains come years and maybe even decades later. 3) How earning interest on interest becomes more important over time than annual investment contributions.

Part 1. Start investing early, and the best day to start investing is today

The example below shows that investing early results in significant gains over time. Assume that Mary starts investing at the age of 20, John at 30, Anna at 40, and Ethan at 50. Assume they can invest $10,000 annually, and investments grow at a 7% annual rate. Mary will accumulate an astounding $8.7 million, John $4.3 million, Anna $2.1 million, and Ethan $1 million over time.

Part 2. Most significant gains come years and maybe even decades later

In the beginning, it may seem as if not much is happening, and you are not seeing much growth in your investment; that is where you have to be patient. 7% on $1,000 is $70 only, 7% on $10,000 is $700, and 7% on $100,000 is $7,000. Things become more exciting when you move into a 6-7-digit size investment base. You have to be patient to get there — this is the phenomenon of earning interest on interest. When you invest, your returns generate additional gains, contributing to future growth.

Part 3 Earning interest on interest becomes more important over time

Most of the returns happen in the later phase of investing; hence, back to point #1 - start investing and putting money aside today. Don’t wait, start investing today!

Growth of interest on interest becomes a true superpower after 20+ years of investing as it becomes a bigger portion of your investment portfolio than your overall annual cash contributions. The green portion in the chart below represents the interest growth accumulation, while the blue portion is your contributions.

Let your money compound over time!

Financial independence topic became more popular in 2023

What happened in January 2023 that made the "financial independence" search spike on Google Trends?

* A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. A score of 0 means there was not enough data for this term.

Meme of the week

Quote of the week

"A modest rate-of-return can accumulate a fortune over time. You don’t need to beat the market, do over-leveraging, or pick the best stock to be rich. You just need to earn a decent rate-of-return and let your money compound over time.” — Naved Abdali

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