The Power of Compounding

What is compounding? Simply stated, it is the act of making money from the money you made on money, or interest on your interest. As with all investments, there can be calculated a definite rate of return that has already been realized over a period of time. Hopefully, you invest wisely and this rate of return is a large positive number. Once your investment has realized a profit, you are faced with a dilemma and must choose between one of two options. You may either take the profit and spend it, or reinvest your profit and experience the power of compounding first hand. Consider the following:

Investor “A” purchased a $1,000 position in mutual fund XYZ one year ago. Today, mutual fund XYZ posted a $50 cash dividend. Investor “A” used the $50 to take his wife on a date and plans to do the same each year when the dividend is paid.

Investor “B” purchased a $1,000 position in the same mutual fund on the same date as Investor “A”. He, however, has chosen to purchase additional shares of the XYZ fund with the $50.

If each of the two investors continue to do the same for 20 years, and the mutual fund has a 10% increase in value annually, plus pays a 5% cash dividend here is how each investor will end up at the completion of the 20 years:

Investor “A”
$1,000 grows at a rate of 10% (the annual increase in share value) to become $6,727.50.

Investor “B”
$1,000 grows at a rate of 15% (the annual increase in share value plus the reinvestment of the cash dividend) to become $16,366.54.

As you can see, Investor “B” has more than double the amount of Investor “A” simply by reinvesting the profits of the investment.

Why not try and run some numbers on your own? Plan for your own retirement.

Imagine for just a moment how dramatic the difference would be if the return were only slightly improved to 18% - 20%. The effects can be staggering. Let us take 10k and see the effects of differing annual rates of return. Over 36 years, the results of a 15% annual rate of return are staggering. We may have 1.5 MILLION with out adding any additional money. Compounding is our friend. Compounding is our BEST friend.

Strategy: Earn 15% per Annum (minimum)

I STRONGLY recommend the minimum annual return you must have on your investments is 15% (without risk). Most financial advisors will say, "well if you want those returns,, there will be a lot of risk, and you have to be prepared to ride out the losses". What a lie.

You can get 15% or more, fairly safe. Ever hear about Tax Liens? Banks buy them. Trusts buy them. 18%, 25% or greater per year, and every once and a while you can pick up a property for pennies on the dollar. I cover how to buy them, easily and simply form the comfort of your home and computer. And you can even buy them in to your retirement program.

10K Turns in to Millions in a few months!

Learn a few well chosen strategies, and become RICH. In fact, if we can make those annual returns turn into monthly numbers (rates of return), our future can become much richer. If I take $ 10,000 and get monthly rates of return, like: 5%, 8%, 10%, 12% or 15%, wealth moves along much quicker. For example.

The obvious message, get better at investing, and earn monthly rates of return that will give you a great future.

Now there is an important part of this equation, that is missing. RISK. So you will want to learn a high probability system, with a proven success record. That is one of the reason, I love CREDIT SPREADS. We can back testing them, and see a 9 out of 10 success rate. Making these numbers more realistic for our future. To learn more about credit spreads, click here now.