Unlocking the Power of Compound Interest – Building Wealth Over Time
Most people want to save money to reach their financial goals — to own a home, retire, and send their kids to an excellent school. Few understand how compound interest can help them do this.
Now, compounding is a truly extraordinary mechanism, which refers to repeating your investment income every year and investing it, thereby increasing your potential for growth at exponential parallel rates over time. By tapping into its force you might succeed in achieving your goals even faster.
Start Early
Wealth doesn’t build overnight. It requires patience and perseverance. While it can be tempting to be swept up by pyramid schemes, the best ways to grow wealth are ones that ultimately involve setting money aside with long-term investing goals.
This is an area where a little early can go a long way. Investing early for retirement or a child’s college, or to buy a vacation home or other goal can produce enormous gains.
If you want to start off right when it comes to retirement investing, open a 401(k) through your workplace or open an IRA, then make sure to also diversify into mutual funds, ETFs, stocks and real estate — all long-term investment strategies to help you grow your money overtime.
Diversify Your Investments
The most basic way to avoid disaster is to diversify: spreading your investment dollars among different asset classes will lower the chances that a single investment will see a catastrophic blow-off in value and thus cushion your portfolio against the wildest swings in value.
Among the asset classes are stocks, bonds, real estate and commodities. Your currency can be further diversified by investing in large-, mid- and small-cap stocks, by country or by sector/industry, or you can invest by bonds maturities, currency and duration.
Diversification no longer helps you to avoid occasional bad outcomes or to achieve consistent profits, but it can help you hit your investing targets while being within your risk comfort zone.
Reinvest Your Earnings
Reinvesting your interest or dividends, for instance, is probably the best way to exploit the power of compounding: your money will grow expeditiously, and is much more likely to reach your financial target.
Albert Einstein described compound interest as ‘the eighth wonder of the world’. And if your aim is to become financially independent, or simply ensure that you enjoy your old age, then understanding how to build significant amounts of wealth over time is key to realising one or the other of these two goals.
Get going, save, save, and save… GIVE TIME AND COMPOUND INTEREST A CHANCE TO WORK ON YOUR BEHALF….Pay down your debt…Keep careful track of where your money goes in the short term…Build a solid financial foundation through saving regularly…Make investments that are right for you….You can never get rich overnight, but following these four strategies will help you reach your financial goals – FAST! Building wealth is a hard-work, dedication, and a lot of patience thing…BUT the rewards can be worth it!
Avoid Unnecessary Withdrawals
If you want to stop working earlier, compound interest can get you there – if you play by its rules. Yes, it requires patience, but if you think long term, the rewards could add up over your lifetime.
Spend your money wisely, too, knowing what tax consequences each withdrawal from your retirement account will cost you. Find a financial adviser to guide you in creating your personal wealth plan. You might also consider reading books or taking courses to study more about personal finance.
The faster compound interest will help your money grow when you’re saving and investing, but the faster it will be disastrous if you owe someone else funds on a debt – it will make your debt double each year and risk bankruptcy. Keeping debt payments as low as possible is the best plan if you’re trying to steer clear of wealth erosion risks.
