How do you turn $10,000 into more than $500,000? Time
. If you are at all interested in money or investing you probably already know about the power of compounding interest. Many stories have been written on this topic, but I feel that compounding interest
is the true key
to wealth, so I decided to write a little on the subject.
I’m not going to go into that much detail since if you’re reading this web page then you probably are already aware of the principle. For the people that have never heard of the subject, you can read up on the topic over at Wikipedia.org.
Now let me give you 2 quick examples. Say you decide to start investing early. You’re 25 and invest $10,000 in the year 2000. You leave the money alone and you don’t touch it until 40 years later or when you’re 65, and the money gets compounded at the end of every month. How much do you think that original $10,000 would be worth in the year 2040? You’d be surprised to find that it’s worth a whopping $537,006
! That’s if you assume an average of a 10% gain over those 40 years which is possible.
Now, say you got started a little late and you didn’t start investing until the age of 35. You still invest the same amount of money, only this time you started just ten years later and left the money alone for 30 years. How much do you think it would now be worth? $198,373 is the answer. That’s a $338,633
difference just by starting 10 years later.
That’s pretty amazing, and that’s the power of compounding interest. The more time that you leave your money alone, the more it will grow. It’s really those last couple years that the money will grow rapidly. Visit Bankrate.com's Simple Savings Calculator to find out what various dollar amounts will be worth in the future when compounding interest is applied.
Lots of people understand and are using the principle of compounding interest to their advantage. In my opinion, it’s the greatest tool to achieving wealth. It doesn’t happen overnight, but if you want to be rich this is the way to get there. If you keep telling yourself that you’ll start investing in a couple of months, STOP
! Go do yourself a huge favor, and do it now! You’ll be glad you did.