how's it going today guys I hope you're
having a fantastic day so in this video
here we're going to be talking about
compound interest what exactly compound
interest is and how you can earn
compound interest and if you guys are
interested I actually have a whole blog
article that goes along with this over
on the investing simple blog that's just
investing simple dot blog if you're
looking to check that out I'm gonna link
that article up down in the description
below it's going to talk more about
earning compound interest and one of the
best methods of doing this so when it
comes to earning interest or a return on
your money there are two types of
interest you can earn first of all you
have compound interest the one that is
most interesting to people no pun
intended and then second of all we have
simple interest so you either have
simple interest or compound interest and
with compound interest you're able to
earn interest on interest but with
simple interest it's just interest on
me go ahead and give you guys an example
of this using numbers that way it makes
more sense what I'm talking about here
so if you invested ten thousand dollars
and you were earning 8% per year of
simple interest you would earn $800 in
interest every single year year one
would be eight hundred dollars year five
would be eight hundred dollars year
twenty three would be eight hundred
dollars every single year you're earning
the same amount of interest and over
those 25 years your account would grow
in value from $10,000 to $30,000 now
compound interest on the other hand
allows you to earn interest on your
interest and if you had that same
investment of $10,000 at 8% but earning
compound interest over 25 years your
account would grow to sixty eight
thousand five hundred dollars instead of
thirty thousand dollars so that's the
difference right there between earning
simple interest and compound interest
with simple interest it was just eight
hundred dollars every single year but
with compound interest you earn eight
hundred dollars the first year you run
around eight hundred sixty four dollars
the second year the third year you earn
nine hundred thirty three dollars that
fourth year you earn one thousand seven
dollars because you're earning interest
on that interest you earn eight hundred
dollars in the first year and that next
year you're going to earn eight percent
on your original ten thousand dollars in
principle as well as eight percent on
your eight hundred
an interest from the first year I know
it's kind of a complicated concept to
understand but really all you have to
understand is that it is interest being
paid on your interest and this allows
your money to grow at an exponential
rate not a linear rate so as far as
linear goes it's just going to be in a
straight line it's going to be gradual
growing at the same pace but if you guys
have ever seen an exponential growth
curve I'm sure you know it starts off
slow but it begins to grow at an even
faster rate the more time passes and
that is something that we call the
snowball effect with compound interest
you're gonna be taking advantage of the
snowball effect and what that means is
that these small and seemingly
insignificant results are going to have
a massive effect or massive change over
time
so that little bit of interest you're
earning every single year that interest
on your interest it's going to have a
massive effect on your savings and on
your investing account years down the
road and that right there is the reason
why most people are not interested in
compound interest because you have to
have a lot of patience you have to
understand this is a long-term investing
strategy and you're gonna see most of
the fruits of this years down the road
10 15 20 years down the road for people
who are patient and understand the true
power of compound interest you can reap
the benefits but for people who are
impatient and they can't see the
long-term picture they're gonna end up
wasting a lot of time and they're gonna
wait until later in their life to begin
investing now as I'm sure you guys can
understand if you want to take advantage
of compound interest the best way to do
that is to give yourself more time a lot
of people refer to compound interest as
the time value of your money it's not
about how much money you're investing
it's really about how much time you're
allowing your money to grow and so young
people are at the biggest advantage
young people have the most time to allow
their money to grow the most amount of
time they can allow themselves to earn
interest on interest and as a result
they can earn the most money through
compound interest and as a young person
if you are skeptical about this and you
don't believe me talk to an older person
and ask them what do you think I should
be doing in my 20s as a young person I
guarantee you most of them are going to
say save more money and invest that
money you're gonna thank yourself years
down the road
in fact Warren Buffett the most
successful investor of our time
attributes the majority of his success
to compound interest he says my wealth
has come from a combination of living in
America
some lucky genes and compound interest
and Einstein also referred to this as
the eighth wonder of the world so it's
so important that you guys understand
what compound interest is and how to
earn it and apply it so how do you earn
compound interest there's a couple of
different ways you can do it some of
them are really good and some of them
are pretty lousy first of all one way
you can earn compound interest is
through your bank account through a
savings account through a checking
account through a money market account
or through a certificate of deposit now
is this a good way to earn compound
interest absolutely not you're actually
not even going to be outpacing inflation
when you're earning compound interest
through a bank account so I would not
recommend doing this with your money
don't put your money in the bank and
think you're gonna become a millionaire
through the interest earned from your
checking account and if you guys don't
believe me go out there and ask a
millionaire how much money they made
from their bank account and they're
gonna tell you that they invested their
money in the stock market or real estate
or something else they didn't just put
their money in the bank save their money
let it sit there and build up a million
dollar net worth so the best way to
visualize these interest rates is to
figure out how long it would take your
money to double given that interest rate
and you can calculate this very easily
by looking at something called the rule
of 72 and what that means is if you take
the number 72 and divide it by your
interest rate from whatever the
investment is that's going to tell you
how many years it's going to take to
double your money at that given interest
rate so take the bank account for
example the average checking or savings
account pays about a 0.05 percent
interest rate so take 72 divided by 0.05
and you will find it's gonna take 1440
years to double your money so if you
have $10,000 in your checking account
it's gonna take you over 1,400 years for
that to grow into $20,000 so that is a
very lousy investment option moving on
how about a money market a money market
has a slightly higher interest rate and
the average is around a 0.1% well not a
0.1
percent it's going to take you seven
hundred twenty years to double your
money so that is still a very lousy
investment option and that's not an
interest rate that most people would be
happy with so moving on then how about a
CD a certificate of deposit a short-term
CD might yield about a 1% interest rate
and that means that you will double your
money in 72 years so if you invested
$10,000 as a 20 year old and interest
rates did not change by the time you are
92 years old you would have $20,000 now
yes you could have a long-term CD at
that point so that's not really a fair
analysis but all I'm getting at is that
the bank is not the best place to earn
compound interest you can earn compound
interest through a bank account or
through investments from your bank but
this is not the way that most people are
doing it now the second way you can earn
compound interest is through the stock
market and this is the best way to earn
compound interest and that is because
the stock market on average pays about 8
to 10 percent per year and that is a
compounded return so following the rule
of 72 here if you take 72 divided by
your 8% return that means that you can
double your money with the stock market
about every 9 years and as a young
person you will be able to experience
more doubling cycles of your money than
somebody who is much older so a 20 year
old who starts investing their money is
going to experience more doubling cycles
than a 50 year old who begins investing
their money and that right there is that
time value of compound interest we were
talking about the more time you allow
your money to grow the more doubling
cycles you'll experience and the more
your money is going to grow over time
and then another way that you can earn
compound interest through the stock
market is through dividend payments by
reinvesting those dividends when you're
paid dividends from a stock you can
either take that dividend in cash or you
can reinvest that dividend back into the
issuing stock and if you reinvest those
dividends back into the issuing stock
you're earning dividends on dividends
also known as compound interest so that
is another way that you can earn
compound interest for the stock market
is through those dividend payments so on
average a dividend stock will pay around
a 3% dividend and just with that
dividend alone you'll double your money
every 24 years by
investing those dividends and the great
part of this is you can earn compound
interest through asset appreciation as
well as dividend reinvestment so when
you invest in a stock that pays
dividends but also has growth potential
you can earn compound interest in two
different ways but the most important
thing you have to remember here is that
in order to take advantage of compound
interest through dividends you have to
be reinvesting those dividends and then
the third and final way a lot of people
earn compound interest is through real
estate by investing in real estate so
let's take a flipper for example
somebody who buys a house fixes it up
and then sells that house down the road
let's say somebody is able to earn a
fifteen percent return on their money
per year by flipping real estate while
following that rule of 72 they would be
able to double their money every 4.8
years
this is how people generate a serious
amount of wealth is by understanding the
power of compound interest and
understanding how to earn compound
interest you can earn it through your
business you can earn it through real
estate you can earn through the stock
market through dividends or you could
earn it through your bank account the
worst way to earn it but there are many
different ways out there that you can
earn compound interest the main thing
you have to understand is that you
should be doing it but anyways guys
that's gonna wrap up this video drop me
a comment down below and let me know
what your favorite method is of earning
compound interest and if you guys have
the time make sure you jump out and
check out the investing simple blog
where we have a whole article about
compound interest and we're also going
to be talking about earning compound
interest through dividends and my
favorite investing platform for dividend
investors so make sure you guys jump
over and check that out
the link is down in the description
below but thank you guys so much for
watching this video I hope you enjoyed
it and I will see you in the next one
if you are interested in learning more
about investing in the stock market I've
created a free course just for you the
link is in the description below here
are a few other videos you might enjoy
as well
you
#Best Education Page #Online Earning
online earning,make money online, earn money online, online earning, online earning sites,
make money online free, online money income, earn money online free, money online, best way to earn money online, online income site, money earning websites, best online earning sites, easiest way to earn money online, earn money payment bkash, online money income site
Posts
No comments:
Post a Comment