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.
Re-ThinkWealth is a personal value investing & options selling blog. By using this Site, you specifically agree that all 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.
Some of our most popular articles:
What is Value Investing? – An article I wrote for Value Walk describing in summary what exactly is value investing.
The 100+ Most Intelligent Investing Quotes of All Time – I love quotes. Especially quotes by value investors who had been wildly successful at managing their funds. The list is consistently updated.
The Intelligent Investor Summary (Ultimate Guide) – A very popular article from my site that summarizes concepts of value investing from the father of value investing, Benjamin Graham.
Chris’s latest articles:
Recently, I have come into the trap of being too focused on the short term price movements of stocks. A meaningful change that can occur in a company will not happen fast. It will take the fastest months and likely […]
Circle of competence is one of the key concepts that value investors apply to make money from the stock market. Warren Buffett often talks about the circle of competence concept but not many understood it. In this article […]
I have made a lot of mistakes in my life. I have been conned, cheated and have lost money in business deals and investments. Today is my birthday so I thought it would be good to summarize the important lessons I have learned so far about […]
Return on Invested Capital is an important formula we should look at when analyzing stocks. ROIC, in short, focuses on analyzing the profitability of a company. What is the formula for ROIC?
Return on invested capital […]
My take on SIA Retail Bond 2019 where I discussed the pros, cons and overall, my thoughts on it. And whether I would invest in it or not. A few good things to say about it, and some things I thought that people should at least be informed on. Instead of using […]
Quick Summary: VIM Club is a Singapore startup I founded with the aim to be the ultimate value investing course in Singapore — and globally. The approach is using exclusive one to one educational lessons […] Who is it for? Complete beginners in stock investing […]
Having multiple streams of income is important in my life. In stock investments, most investors I know get their streams of passive income from capital gains and dividends. Getting premiums/cash flow through selling options is another strategy I often use. But all the serious investors will tell you […]
Warren Buffett said that The Intelligent Investor is the best book ever written on investing. This book contains over 600 pages of wisdom. The wisdom that serves as the building blocks for all value investors. This is The Intelligent Investor Summary. Enjoy! Warren Buffett […]
The quality of our thinking creates the quality of our life. If the above sentence is true, then Charlie Munger must have made plenty of high-quality decisions over the course of his lifetime. Charlie is currently worth about US$1.8 Billion. He is the right-hand man of Warren Buffett who […]
If you are an investor of stocks, you would know that currently (as of November 2018), we are in a (or nearing) stock market correction/bear territory. Before things get worse, here are 5 intelligent things to do during any stock market crash. Here is your playbook for successful investing:
This list summarizes 100+ of the best value investing quotes of all time. They are spoken from some of the best value investing minds in the industry that I have modeled after for my investing philosophy. Both that have passed away (Benjamin Graham) and those that are […]
Daniel Ek has built a great business with Spotify. Now that it has recently IPO-ed in 2018, is this digital music streaming service of his, invest-worthy? I am sure that by now you would most likely have heard of Spotify before. But I am sure that not many of you know that Spotify was founded and […]