Compounding Interest - Making Use Of It

A compounding investment is one where the interest you are credited with is re-invested into the principal investment. So for example, if you invest one thousand dollars at 5% return, at the end of the first year you will still have your a thousand dollar principal, plus $50 interest earned, for a total investment of one thousand and fifty dollars.

By rolling each of your allocated interest income returns back into your original investment, in other words allowing it to accumulate or compound, you produce a very powerful effect over time.

The average working life is forty years. If a young person 20yrs of age decides to have just $100 per month of their income automatically invested each month until age 60, they would invest a total of $48,000 (($100 x 12mths) x 40yrs).

However… if they had it invested at 10% interest and allowed their interest income to accumulate within their investment fund, they would end up with a nest-egg over ten times the size of their total investment amount and would reap a payout of over $584,000 by the time they reach sixty years of age!

The period of time that your money has to accumulate, and the interest rate at which it is earning income, are critical factors in the compounding process. Further, if you use leverage by investing in real estate, you can really boost your returns over time.

Generally, one can purchase residential real estate for a 20% down payment. If you follow Hans Jakobi’s Real Estate Secrets teachings, you can even do it for no money down. But assuming 20% down, if you put in $40K to purchase a $200K property, when that property goes up in value 5% it will be worth $210K. That $10K is a 25% return on your $40K invested. Once the property is worth $300K and it increases another 5%, it will be worth $315K. You will then have made a 37.5% return that year on your original $40K invested.

It is definitely worthwhile getting educated about financial matters because if you apply good knowledge to your investing, you can dramatically alter your lifestyle and retire years earlier. One excellent source of financial education is Success University. Their curriculum includes dedicated sections for both finance and real estate from world experts such as Jay Abraham, Carol Tuttle, and Greg Reid amongst many others. You can check out the Success University curriculum by accessing their $2 fourteen Day Trial membership via the webpage peel away ad in the top right hand corner of the page I linked to in the above paragraph.