Every investor wants to get a return on their investment. They want to put their money where they know it will grow and they will be grinning from ear to ear as they see the figures growing. Most investments come with their risks but some offer vast benefits that will definitely delight the investor. One example of such an investment is compound investing.
What is Compound investing
Compound investing is saving as much money as you can with a bank or credit union or even a retirement account, IRA or any suitable financial institution and earning interest from what you have saved. Saving as much as you can when you are younger makes the investment even more worth it and better for your financial future. The main concept here is that you earn interest on top of the interest whether you have saved $1000 or $10,000. To get a visual, take a look at a good compound interest calculator.
Every investor would be most please when they experience the power of compound interest on their savings and investments. Compound interest simply means the growth of your investment from earning interest on interest. You have probably been viewing your interest accumulating courtesy of that loan you have. But now is the time to start viewing interest as the money you rightly earn from your savings and investments.
However for you to reap the impressive benefits of compound interest, then you have to be determined to practice compound investing like never before. The secret to a successful investment is actually in the compound interest. Still, you need to know where to put your money so that it can work for you. But first, you really have to know the true benefits of this investment option before you plunge in excitedly with your money. You have to understand your true potential.
Major Benefits of Compound Interest
The main benefit, of course, is that saving today will guarantee you a better tomorrow. Here are more benefits of compound interest.
- Increases The Investor’s wealth.
Who doesn’t want their wealth to increase? It is every investor’s prerogative, and this is how it happens. The compound interest is the amount you will earn as an investor from not only your savings but also from the interest that those savings generate. To make this work better begin investing early and the younger you are the better especially if you are saving for your retirement. Since it is the interest on the interest received it has to come about when you reinvest the interest instead of withdrawing it. This results in the massive growth of your investment.
- Better Returns Compared To A Simple Interest
Remember, there are two types of interest which are the compound interest and the simple interest. Unlike the simple interest which is generated from the principal amount you invested, as an investor, you will also be paid a compound interest on both the principle sum and the interest earned. For example, if you invested $1000 at a 10% annual interest. In one year you will have $1100 with either simple or compound interest.
From that initial year, the interest benefits begin manifesting and continue for the rest of the period that the investment remains in place. In the second year, you will earn a total of $1200 with simple interest but earn more with compound interest. You can calculate how much compound interest you will earn using the compound interest calculator which is very efficient and less strenuous.
Maximizing The Power Of Compound Interest
It is possible to take full advantage of the power of compound interest and this is what you should consider.
- Begin saving as early as you can because this is the best way to grow your investment and achieve the greatest benefits. Many financial experts recommend beginning retirement saving plans as soon as possible.
- Save as much money as you can and don’t touch the accumulating interest for as long as you can.
- To understand better, you could also check how often the interest is compounded. Consider investments where the interest compounds monthly because your money will grow faster compared to investments where the interests compound yearly. Consider compounding your returns as often as you can by keeping on reinvesting throughout.
- As you look for investments consider the ones with low or no fees at all because fees have been known to reduce the benefit over a period of time. You can also make sure that the investment offers a fast and automated way to deploy capital back to your investments. In the end, just remember that daily compound interest is always better than the annual one, therefore, look for investments that favor you in this regard.
As an investor, you want to make the best returns from your investments. If you are too deep in debt don’t worry. You can begin making a few key lifestyle changes to limit your spending and save more. Find the best investment platform that offers the compound investing and grow your benefits by reinvesting your profits, month on month, year on year.