{"id":6456,"date":"2019-07-08T12:09:49","date_gmt":"2019-07-08T17:09:49","guid":{"rendered":"http:\/\/schenkelberg.investments\/?p=6456"},"modified":"2019-07-08T12:10:02","modified_gmt":"2019-07-08T17:10:02","slug":"compound-interest-your-snowball-to-financial-success","status":"publish","type":"post","link":"https:\/\/schenkelberg.investments\/?p=6456","title":{"rendered":"Compound Interest. Your Snowball to Financial Success"},"content":{"rendered":"\n

\u201cThe rich get richer.\u201d We\u2019ve all heard this\nphrase. Why does this happen? Is it better investment opportunities, access to\nother wealthy investors or other advantages the rest of us can\u2019t take advantage\nof? Not really. Primarily, the rich get richer because of the concept of\ncompound interest. Their money is working for them. Much like a snowball\ngathers more snow as it rolls downhill, money that is invested collects more\nand more money as time marches on. This article is a little bit of a math story\nproblem, but please bear with me.  <\/a><\/p>\n\n\n\n

This concept is not just\nfor the rich. It can be the key to putting you on the path to financial\nsecurity and success beyond your imagination. Each quarter I put a table in the\nnewsletter comparing Bob\u2019s and Jeff\u2019s saving and investment history. Bob only\nsaves and invests early for seven years and then keeps his money invested. Jeff\nwaits for seven years and then tries to catch up by saving and investing for 13\nyears. At 20 years, Bob has $13,000 more than Jeff, even though he only saved\n$35,000 of his own money while Jeff saved $65,000.<\/a><\/p>\n\n\n\n

If\nyou are a little late to the game, like Jeff, don\u2019t fear. You can still be much\nbetter off than many people if you start investing now. It\u2019s never too late to\nget the snowball rolling. Millions of dollars could be waiting for you with\nonly a few hundred dollars a month. Even if you don\u2019t have a few hundred\ndollars a month to start, start with what you can. It\u2019s not as easy to play\ncatch up as you may think it is.<\/p>\n\n\n\n

The Wall Street Journal<\/em><\/a> reported an article written by Dr. Schlomo Benartzi, a professor and co-head of the behavioral decision-making group at UCLA\u2019s Anderson School of Management. In the article, Dr. Benartzi illustrated a mistake many people make when calculating compound interest. Commonly, people underestimate the concept of earning interest on interest, sometimes to the tune of over $2 million. The graph below shows the actual return someone can make if they are saving $400 per month at a 10% average annual return for 40 years. <\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Compound interest is\ndefined by Investopedia.com as interest calculated on the initial principal,\nwhich also includes all of the accumulated interest of previous periods of a\ndeposit or loan. A simple way to think about it is interest on interest. For\nexample, if you invest $10,000 in a product that pays you a 4% return in the\nfirst year and then a 4% return again in the next year, you will not only make\n4% on your initial investment in the second year but also will  make 4% on the return you made in the first\nyear:<\/a><\/p>\n\n\n\n

Year\n1:    $10,000\nx 0.04 = $400 (Total Earned = $400)<\/p>\n\n\n\n

Year\n2:   $10,000 x 0.04 = $400<\/p>\n\n\n\n

                $400 x 0.04 = $16<\/p>\n\n\n\n

                $400 + $16 = $416 (Total Earned\n= $416)<\/p>\n\n\n\n

The benefit of compound\ninterest begins in year two if you leave the returns invested. By accumulating\na return on the previous return, or interest on interest, your money begins to\nsnowball. This is when real returns begin to accumulate.<\/a><\/p>\n\n\n\n

The\nconcept of making money on our money isn\u2019t just for the rich. Everyone can take\nadvantage of it. So start paying yourself first and before you know it, you\u2019ll\nbe able to splurge on more than you thought you could.<\/p>\n","protected":false},"excerpt":{"rendered":"

\u201cThe rich get richer.\u201d We\u2019ve all heard this phrase. Why does this happen? Is it better investment opportunities, access to other wealthy investors or other advantages the rest of us can\u2019t take advantage of? Not really. Primarily, the rich get richer because of the concept of compound interest. Their money is working for them. Much […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[122],"tags":[],"class_list":["post-6456","post","type-post","status-publish","format-standard","hentry","category-financial-planning"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p7kXxe-1G8","jetpack-related-posts":[{"id":6762,"url":"https:\/\/schenkelberg.investments\/?p=6762","url_meta":{"origin":6456,"position":0},"title":"Midlife Crisis Musings. 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