Investing! This is consistently given as one of the most confusing topics individuals face. In this series, I wanted to share some basic investing fundamentals. My goal is to help you understand this topic better and walk away with practical steps.
STEP ONE Evaluate & Diversify
STEP TWO Automate Your Investments
STEP THREE Get the Free Money
STEP FOUR Unleash the Power of Compound Interest
Have you ever heard the say, “my money is working for me”? This is exactly what compound interest does for you! When you utilize the power of compound interest, you’re allowing the interest you’re making to also earn interest.
For example, let’s say we have $100 in an investment account that grew to $105 in one year. This is the equivalent of 5% interest. Now suppose the $105 is left alone for another year and continues to grow at a rate of 5%. Will it be paid another $5 interest when the second year is up? No! It will be paid $5.25 because interest was received on $105 – not just $100. Interest earning interest!
Take a look at the below example of a $100/month investment growing at an annual compound rate of 12%.
Remember, you are only investing $100 each month! After 40 years, you’ve only invested $48,000 BUT your account balance is $1,176,477! This means that $1,128,477 is the interest you have gained!
Now do you see the POWER of compound interest?
Where do you find investments that offer 12% return? I have found no investments that constantly return 12% every single year, but I have found several mutual funds that average over 12% return over the past 50 years. Some years could lose 15% while others gain 30%. You can see a list of my current investments HERE.
How to maximize your investment growth:
- Invest enough to receive the entire company match: By investing in an employer-sponsored retirement plan that matches a portion of your contributions, you could even receive a 50% or 100% return!
- Monitor your investments at least every six months: I track my investments at the end of every single month. This helps me understand how each one is performing and allows me to make necessary adjustments.
- Consider investments beyond the stock market: The stock market is just one place to invest. Consider investing in a small businesses, real estate, and intellectual property – like patents and licensing rights. Remember, a higher interest rate almost always means a higher risk.
– Establish a consistent investing habit. Invest into your retirement account every paycheck for the rest of your working life. Even if you can only invest a small amount, it will add up to more than you can imagine!
– Recommended Resource ==> OXEN: The Key to an Abundant Harvest – Learn how to maximize your money through investing