{"id":1220,"date":"2021-10-01T19:03:14","date_gmt":"2021-10-01T19:03:14","guid":{"rendered":"https:\/\/readyretiree.com\/?p=1220"},"modified":"2021-10-03T20:31:33","modified_gmt":"2021-10-03T20:31:33","slug":"why-you-should-bank-on-compound-interest","status":"publish","type":"post","link":"https:\/\/readyretiree.com\/why-you-should-bank-on-compound-interest\/","title":{"rendered":"Why You Should Bank on Compound Interest"},"content":{"rendered":"

investing. Simply put, compound interest means that you earn more money on your existing investments by reinvesting some or all of your dividends back into new investments. With compound interest, time can work for you!<\/p>\n\n\n\n

A Simple Example of Compound Interest<\/h2>\n\n\n\n

Compound interest is one of the most powerful things in finance, but it’s also one that many people don’t understand. What exactly is compound interest? It’s when your money earns interest on top of the principal you already have. The math behind this calculation can get complicated, so we’ll keep it simple here. Let’s say you invest with an initial principal of $1000 at a 10% annual rate, compounded annually for 20 years. Assuming no withdrawals or additional deposits, your account balance will be $5100 after 20 years! Now let’s say you withdrew $500 from that account every year for those twenty years to live off of and invested nothing further – by the end of those twenty years your total would be just $1097 because all you’re earning now are periodic payments without the benefits of compounding. Let’s get a little more complex, and continue to explore all the benefits of compounding interest.<\/p>\n\n\n\n

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What is CAGR?<\/h2>\n\n\n\n

The compound annual growth rate (CAGR) is an economic term used in finance and banking. The compound annual growth rate is found by taking the periodic interest and compounding it over a certain number of years, then subtracting one from that total to find out what percentage was actually earned each year.<\/p>\n\n\n\n

The compound annual growth rate can be applied to any type of investment or item with cash flow- including stocks, bonds, mutual funds, real estate, and intangible investments.CAGR is often used when comparing different investment opportunities or assets in order to determine which has the best long-term return on investment potential for continuous compounding.<\/p>\n\n\n\n

Why compound interest is such an important concept for investors to understand<\/h2>\n\n\n\n

The compound interest concept is a powerful one that can help you dramatically grow your money if used correctly. The power of compound interest leads to the reason why most financial experts around the world suggest investing<\/keyword> early and often in order to achieve great wealth over time. Compound Interest might be difficult for some people to grasp, which is understandable – it’s tough to understand how compound interest can be so powerful if the numbers are just moving around in your head.<\/p>\n\n\n\n

The sooner you can grasp the concept and start using it to your advantage, the sooner you will reap the benefits.<\/p>\n\n\n\n

What are some other interesting facts about Compound Interest?<\/h2>\n\n\n\n

As we’ve mentioned above, compound interest can really work out well if used correctly.<\/p>\n\n\n\n

Here are a few interesting facts about the compound interest that might help you understand the concept better:<\/p>\n\n\n\n

Compound interest is what causes your money to earn more and grow exponentially over time. To illustrate this point, let’s say you started with $100 at an average annual rate of return of 12%. That means in one year your $100 would be worth $112. Now let’s say you compound again, so the next year your investment would equal $121.20 (the original amount + interest). If you compound annually for 30 years at 12% with only annual compounding periods, your money will grow to over 286 times its original value! <\/p>\n\n\n\n

How to Grow Your Investments With Compound Interest<\/h2>\n\n\n\n

We recommend that you sign up for an investing<\/keyword> account and automate it monthly or weekly with micro-deposits into a low-cost index fund that is tracking one of the major stock market indexes. Trying a set it and forget it type of account is the best way to compound interest properly. If you continually go in and out of the investment, it won’t work as intended.<\/p>\n\n\n\n

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