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By now you know that investing has worked for millions of people worldwide. Almost every successful person invests in one way or another and its taken up a large enough spot on the news to understand that investments are a very important part of people’s day to day lives…including yours. But do you know why it works? It’s called compound interest.
Compound interest happens when money grows upon itself. Have you ever put a number in a calculator, multiplied it by two, then kept clicking enter? Before long you hit an un-readable number that grew so fast you don’t know how it happened.
In the same light, picture a snowball rolling downhill collecting more and more snow. You might be standing at the top of the hill now, but before long you will be at the bottom wanting to collect the largest snowball possible. The other thing to keep in mind is what is allowing the snowball to grow. Two major factors: Time & Snow. The longer the hill, the bigger the snowball gets. It will also increase with more available snow.
Stock Markets work the same way. Money is invested and begins to grow on itself, allowing you to reap the rewards. Below is a chart showing the difference between compound and simple interest from a $10,000 investment over 40 years:
This illustration is hypothetical and is not intended to serve as a prediction of future investment results. The hypothetical investment rates of return shown are illustrative and should not be deemed a representation of past or future investment rates of return. Actual rates of return may be more or less favorable than those shown and will depend on a number of factors including the investment allocations. Past performance is no guarantee of future results.
You could potentially earn over $600,000 more – just by using the principals of compound interest. And this, ladies and gentlemen, is why investing can work. Instead of paying a steady interest rate to you, your money gets reinvested, allowing it to grow upon itself.
Securities and investment advisory services offered solely through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and Creative Financial Partners are not affiliated. Additional products and services may be available through Eric T Croak or Creative Financial Partners that are not offered by AIC. Representatives of AIC do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your situation.