Yesterday we showed what happens when you lose money sometimes, compared to making steady gains year over year. If you care about your financial future, you SHOULD have been thunderstruck by the simple idea and example. Let’s play some more with this.
Compound interest is the ever-expanding benefits of benefits. It’s interest on top of interest. It’s your children having children. And the more consistent you are over time, the more powerful it gets.
So let’s say you are an investor who starts with $10,000. In the next five years these are the percentage returns you get –
12%, 13%, 4%, -23%, 8%
Meanwhile, your conservative sister achieved these results with her $1000 –
10%, 5%, 7%, 2%, 11%
Who did better?
You wind up with $10,945. Your sister, who watched grass grow for five years has $13,992. You did better than her most of the time, except for that one year where you took a good step backward.
Taking steps backward and losing your principal kills compound interest.
Bonus thought – Your cool brother had $10,000 and put a down payment on a Camaro. How much does he have in five years?
Continued….