The Magic of Compound Interest!

The Magic of Compound Interest!

Compound interest, by definition, is interest computed on the sum of an original principal and accrued interest. It is "interest on interest" and it has a snowball effect on returns. Let's look at this example from ramseysolutions.com to understand why time in the market is more important than timing the market, or even capital invested to a large degree:

"When Jack turned 21, he decided to start investing $200 a month every year for nine years. At age 30, he decided to stop investing altogether. But his friend Blake started when Jack stopped, investing $200 a month every month starting at age 30, all the way until the ripe old age of 68.

So at age 68, who do you think had more money in their account? Let’s do the math.

At the end of nine years, Jack invested $21,600, didn’t invest another dime, and ended up with close to $2.35 million at age 68. Let’s say that again—$2.35 million! That’s the power of compound growth, friends.

And Jack’s friend Blake invested a whopping $91,200 over the course of 38 years. At age 68, he had built up $1.3 million, but he never caught up with Jack.

So how did Jack do it? He didn’t invest nearly as much as Blake did but ended up with over $1 million more. Compound growth can turn more than $20,000 invested in nine short years into almost $2.35 million over 38 years!"

Read more at https://lnkd.in/g8FrBPXP regarding this example.

The moral of the story? Invest early and often. If all you can do is $25/month then do it! It will build a disciplined habit and take advantage of time. Time is the one finite resource we can never get more of, so don't let it waste. Compound interest is your biggest ally in the world of investing and your future self will thank you. #ramsey #compoundinterest #compounding

Consult a financial advisor for more best practices.

-Your friends at Red Oak Financial Group