The real power of compound interest
Contents
How small investment steps can lead to big, life-changing financial results
There is no room for failure in 2021. There’s one goal, and one goal only: to make 2021 your most financially successful year yet!
The answer to your problems could be compound interest.
It may not sound super exciting or life-changing, but trust me, it’s long been the wealth accumulation strategy behind some of the world’s best investors.
To recall a famous Albert Einstein quote on the topic…
“Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” – Albert Einstein
It’s right up there with The Pyramids of Egypt!
So, now that you’ve heard the hype, let’s figure out how to make compound interest work for you. Rest assured, you don’t need to be a maths genius like Einstein either! Anyone can take advantage of compound interest – you just have to know how.
How does compound interest work?
Interest can be either simple or compounded.
Simple interest is only based on the initial money you deposit, termed the principal.
Compound interest, on the other hand, is the interest you get on both:
- The principal and
- The interest that you earn.
For example, if you were to start a savings account today, you will start to earn interest on the amount of savings you have. But with compound interest, you’ll also start to earn interest on that interest!
Want to know how much you can earn with compound interest?
There are just three things you need to know to find out just how much money you can earn:
- The sum of money you have to invest
- The rate of return
- The time you have to let your money grow.
Being big fans of showing rather than simply telling, we thought we would share the real magic of compound interest with numbers.
Say you invested $10,000 into a Diversified Portfolio yielding an annual interest rate of 6%. Here’s how your investment returns would look 40 years down the track.
How your $10,000 investment grows with compound interest
| Year | Total Balance |
| 0 | $10,000 |
| 10 | $50,970 |
| 20 | $125,510 |
| 30 | $261,129 |
| 40 | $507,873 |
As you can see, your initial investment has increased by more than 10X over 40 years. With compound interest, you can turn your $10,000 into over $100,000 by barely lifting a finger.
That being said, $100,000 will only get you so far these days.
So, let’s look at how one small change could make a huge difference to your financial future. If you start with $10,000 and also add $200 a month into your investment, look at how the numbers really start to grow…
Here’s how your $10,000 investment soars by adding $200 a month and adding back compound interest
| Year | Total Balance |
| 0 | $10,000 |
| 10 | $50,970 |
| 20 | $125,510 |
| 30 | $261,129 |
| 40 | $507,873 |
The best part about compound interest is that it can work for anyone and everyone. No matter how much you have to start with, you can still reap the rewards.
Find out how much your money can grow with this awesome compound interest calculator from MoneySmart.
Now you know all about the benefits of compound interest, it’s time to let this strategy do more of the hard work for you.
Are you ready to reach financial freedom sooner by harnessing the power of compound interest?
At CCFPG, our experienced team of investment experts are here to help you on your path to financial success.
We will guide you on how to invest your money and show you how to use compound interest to accelerate your path to financial security.
If you are looking to secure your finances and your future, book an initial meeting with one of our experienced Financial Advisers. We have offices located in the Central Coast – Erina, (CCFPG), Newcastle – The Junction (NFPG), and Sydney CBD (SWA).
Disclaimer: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.
