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.
Important: Please read our full disclaimer.
Further Learning or Doing
- Our Telegram Channel – You can get daily updates on stocks, business, economy, and value investing knowledge from us here.
- Our Value Investing Mentorship Program – Individuals looking to learn skills to become better investors can join our effective and exclusive course, taught via one-on-one mentorship, here.
Read also now:
Think About How SIA Was When Times Was “Normal” Before we got into this COVID-19 mess, SIA is already not a great business to own even when times were “normal.” All of us know that the airline […]
In this article, I’d like to share eight signs of potential fraud in our stocks portfolio that we should be careful of. These are eight simple potential warning signs of bad financial reporting or early markers […]
3. As of 1H20, Most Earnings Paid Out As Dividends Based on AEM 1H20 reports, their cumulative capital allocation breakdown from 2017 to 1H2020 is as follows: Dividends – 47%, Acquisitions – 25%, Capex – 18%, Buybacks – 10%. It is interesting to note that […]
Eastman Kodak Company (NYSE: KODK) opened at $2.15 (Monday) on July 27, 2020, and closed at $33.20 (Wednesday) by 29 July 2020. That is a 1,444.19% increase over a two day period. In this article, I am going to give you some background on the Kodak company, the reason […]
Last Friday on 24 July 2020, Intel closed 16.24% down. Although I do not own any Intel stock, I was curious why it fell after releasing its Q2 2020 results. Just a while ago, I saw the news that after 15 years of partnership, Apple decided to break up with Intel and stop using its […]
1. Temasek Portfolio is Huge. Although I know that Temasek has a huge portfolio, I was surprised to see that it is around the size of Warren Buffett’s. As of 31 March 2020, the net portfolio value or NPV is at S$306 billion. So we have our own Warren Buffett in Singapore, that is […]
Who is Adam Smith? Adam Smith (1723-1790) was a philosopher and economist who was best known for authoring the book An Inquiry into the Nature and Causes of the Wealth of Nations. Wealth of Nations also happens to be one of Warren Buffett’s favourite books […]
As a value investor, as a practitioner of value investing, I am very interested in studying funds I view as an executioner of the various value investing methodologies I myself am very passionate about. In this article, I will list down some of the value investing funds in […]
Being a successful investor requires us to have equanimity in everything we do. There are many benefits to keeping a gratitude journal, firstly, the balance of emotion. Would you rather make $100,000 a year but all your friends and neighbors make $200,000 a year or […]
How do people get rich by investing in stocks? Can we actually get rich by investing in stocks? Yes, we can. But we need to utilize both Patience and Compound Interest in Great Companies. With the proper foundation, framework, character, and skills, I truly believe that […]
Sun Tzu Art of War Quotes “He will win who knows when to fight and when not to fight” – We should only invest when there is clear benefit to do so, do not do something just for the sake of doing something. “If you know the enemy and know yourself, you need not fear […]
In this thinking fast and slow book summary, I will explain to you the various human biases that we have and why it is important for us as investors to understand it. It all begins with a simple premise that we all have two systems in our brain, system 1 and system 2 […]