most powerful amplifier Compound Interest Calculation - The Secret Weapon Upon Which All Fortunes Are Built

by:Winbridge      2019-12-01
I am always taught to listen carefully to people who are much smarter than me.So when Albert Einstein, one of the greatest people on Earth, was quoted as saying, "the most powerful force in the universe is compound interest," I believe in him.What is compound interest?Compound interest is defined as "interest calculated based on principal and accrued interest.In other words, compound interest means that the money you invest in and the interest it has accumulated continues to earn more interest.This may not sound very powerful, but when you mix the key factors-time-a simple compound interest calculation becomes a secret weapon on which all wealth is built.Let's take a closer look.A very useful 72 rule for a simple compound interest calculation is called the rule of 72, which indicates that the 72 divided by the annual rate of return is equal to double the number of years in a given number of currencies.For example, an investment of $1,000 and an annual income of $ 9% will turn into $2,000 in eight years, because 72 divided by 9 equals 8.Using this simple calculation for a longer period of time, you can quickly see the great power of the compound.For example, we assume that a 23-year-old invests $10,000 a year in a stock market index fund with a 10% return.According to the 72-year rule, the value of the fund is about double every seven years.So if the 23-year-old allows the money to continue to compound until he reaches 65, the value of the fund will double, about six times (65 minus 23 equals 42, 42 divided by 7 equals 6 ).The original $10,000 turned six times to $640,000!Simply amazing!What do I do now?An easy way to start is to buy the stock market ETF, the symbol VTI.To eliminate transaction costs associated with the purchase of an ETF, we recommend opening an account in Zecco that represents zero commission costs.Zecco does not have an account minimum or account maintenance fee except for free ETF transactions.To learn more about opening a Zecco brokerage account, visit our recommended investment products page on the smart money advocates website.Compound interest is amazing, because compound interest can be used to increase our savings, which may be the cause of a financial nightmare if applied to our consumption habits.What do I mean?A simple and clear credit card.When you only pay the minimum amount of your credit card per month, the balance you owe will multiply.You might ask why?Because most cards charge very high rates, sometimes up to 20% or more.Using the 72 rule, the balance of ownership will double in 3 years.6 years, if there is no payment, calculated at an annual interest rate of 20%.As you can see, it doesn't take a long time for the balance to be completely out of control.Compound interest is a mathematical miracle that no matter your nationality, gender, race, IQ or economic background, anyone can gain financial freedom.In your early adulthood, a simple compound interest calculation can open your eyes and force you to take action while the key factor-time-is still around you.So, let compound immediately work for you and make yourself financially successful.
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