Compounding power of the investment, expanded

Today's topics include:

1. “The power of compounding interest on the investment” expanded

2. What is financial independence?

3. Meme of the week

4. Quote of the week

The key aspect of my newsletter: I am ONLY interested in actions that are effective, produce results, and get you where you want to be.

The previous newsletter focused on compounding interest on the investment, specifically 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. Link 

“The power of compounding interest on the investment” expanded

I wanted to highlight three additional critical benefits of compounding: 4) effective inflation hedge, 5 ) accelerated wealth accumulation, and 6) it will help achieve the desired financial independence - the main focus of my newsletter.

Part 4. Reduces the Impact of Inflation

“Inflation is taxation without legislation.” -Milton Friedman

Reduces Impact of Inflation: Over time, compound interest can help to offset the effects of inflation, ensuring that the purchasing power of your savings does not diminish. Recently, the official US inflation was as high as 9.1% annually. So, if you have made $100,000 in income around 2022, you instantly lost $9,100 that year. You have to figure out how to make your money work for you all the time; otherwise, inflation will erode your wealth.

The standard or target annual inflation rate in the United States and Canada is around 2%. This target is set by the respective government bodies, which aim to maintain price stability and moderate long-term interest rates. However, inflation will fluctuate, and you must be ready to deal with it no matter how high.

Part 5. By reinvesting your earnings, you can accumulate wealth at a faster rate

Accelerated wealth accumulation: By reinvesting your earnings, you can accumulate wealth faster than simple interest. This enables you to achieve your financial goals more efficiently and quickly. It does take time at the beginning, but it is one of the fastest and reliable ways known.

It takes about 8 years to accumulate your first $100,000 if you invest $10,000 manually, and the investment return is 7%. Getting the additional $100,000 takes less time and roughly 5 years. As more money is accumulated and reinvested, the wealth accumulates faster. It takes 4 years to gain the next $100,000, then 3 years, then 2 years, and so on.

Part 6. Compounding interest will help to achieve the desired financial independence

It will help to achieve the desired financial independence—the main focus of my newsletter. With disciplined saving and investing habits, compound interest is one of the most effective tools for attaining financial independence and freedom from financial constraints.

Financial independence definition

Financial independence is the ability to do what I wish to do in life or have enough money to pay living expenses for the rest of my life without being employed or dependent on others. I like the definition provided by other folks, which is the same idea but from a different angle.

“Without financial freedom, someone else is controlling my time and by extension, my life. The purpose of having money is so that you don't have to be at a specific place at a specific time doing anything you don't want to do.” - Naval Ravikant

“The most dangerous things are heroin, and a monthly salary.” -Nassim Taleb

"Your economic security does not lie in your job; it lies in your own power to produce—to think, to learn, to create, to adapt. That's true financial independence. It's not having wealth, it's having the power to produce wealth." - Stephen Covey.

“Your salary is just your company’s monthly subscription of you.” - Anonymous

What is financial independence for you?

Meme of the week

Quote of the week

"If you want to be financially free,

you need to become a different person than you are today and let go of whatever has held you back in the past."

-Robert Kiyosaki

Thanks for stopping by!

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