3 Actions to Make Best Use of Compound Interest
21 April 2020
Compound interest is very powerful.
It is the interest you get on top of the previous principal + interest you already got.
Here are 3 actions you can take to make the best use of compound interest:
Invest early – the earlier we invest, the more powerful the compounding effect becomes. By investing early, we will truly maximize the effects of compounding – so long as we stay invested for the long haul.
Re-invest your profits – remember than compound interests are interests on top of your original capital + your interests. So in an investment point of view, it is your original starting capital + all the profits you already made from the stock market. By re-investing them, you are making use of compound interests to the fullest as you are building your base capital.
Add more money – by adding more money to your portfolio, you are building your base capital. It will accelerate the impact of the compounding because the % return is built on a bigger base.
Rule of 72 gives you an idea of how many years it takes for your investment to double. Getting 20% a year, takes you 3.6 years (72/20) and getting 8% a year, takes you 9 years (72/8).
But remember, compound interest is good in theory. But if you lose money consistently on your investments or you cannot get a consistent rate of return over time, compound interest is useless.
This is Chris’s weekly take, which can found in VIM membership site at www.vimclub.sg.
The information provided is for general information purposes only and is not intended to be a personalized investment or financial advice.
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