The Power Of Compound Interest

The enormous power of the compound interest effect was even mentioned by Albert Einstein in 1921. When asked about the strongest force in the universe, he answered spontaneously: "This is compound interest." In order to achieve financial freedom, you must, therefore, start to invest your money as early as possible. The earlier you start, the more you will profit from the enormous power of compound interest. Compound interest is a simple means of building up assets. Due to its simplicity, it is often underestimated. In general, however, you should definitely use the compound interest effect to increase your money. The principle is simple: You generally receive interest on capital invested. Interest is credited to the investment. If the interest is not spent and remains in the investment,

your capital increases, and thus the base for future interest increases.

This means that the capital to which interest is paid grows continually, and you receive more interest income than in the previous interest period. As a result, your assets grow at an ever-faster rate.

Let's look at an example from www.businessinsider.com

We have three investors who take different approaches to retirement saving:

• Our first investor starts saving $300 per month at the age of 25

• The second waits ten years and starts saving $300 per month at 35

• The third investor waits even longer and starts saving at 40, but in order to catch up, puts $600 into her account each month

If we assume a respectable but reasonably conservative annual rate of return of 5%, here's what happens to our three investors' accounts:

So start investing early!