Starting out as a first-time investor doesn’t require a whole lot of money, which means that you don’t need to wait until you’ve accumulated a large reserve of ready cash. You may ask: Why the big rush to start investing?
The answer is simple: You want to begin earning compound interest as soon as you can.
Compound interest is actually the interest you earn on your interest. For example, if you invested $10,000 and earned 10% interest in the next year, your interest income would be $1,000. If you earned 10% again the following year, the $100 you would earn on the $1,000 (in interest you earned in the current year) would be considered compound interest.
Compounding is a compelling reason to start and keep investing for the long-term because money left untouched reaps the greatest reward from compounding. To determine how many years it will take to double your money as a result of compounding, you can use the Rule of 72. Just follow these steps:
1. Determine what interest rate you think your money will earn.
2. Divide 72 by that interest rate.
The number you get is the number of years it will take to double your money.
For example, suppose that you believe you’ll earn 8% annually in the coming years. If you divide 72 by 8, you can see that doubling your money will take nine years.
The answer is simple: You want to begin earning compound interest as soon as you can.
Compound interest is actually the interest you earn on your interest. For example, if you invested $10,000 and earned 10% interest in the next year, your interest income would be $1,000. If you earned 10% again the following year, the $100 you would earn on the $1,000 (in interest you earned in the current year) would be considered compound interest.
Compounding is a compelling reason to start and keep investing for the long-term because money left untouched reaps the greatest reward from compounding. To determine how many years it will take to double your money as a result of compounding, you can use the Rule of 72. Just follow these steps:
1. Determine what interest rate you think your money will earn.
2. Divide 72 by that interest rate.
The number you get is the number of years it will take to double your money.
For example, suppose that you believe you’ll earn 8% annually in the coming years. If you divide 72 by 8, you can see that doubling your money will take nine years.
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