In the world of investing, timing can be everything. If you have money available to invest, that’s a good thing, but whether you should start now or wait can make all the difference in your long-term results. Compound interest is what really makes investing so powerful over time, and the earlier you can start, the better your returns will be when it comes time to cash out. Find out why it’s so important to start investing early and get some tips on how to get started with compound interest working in your favor.
Investment Basics
When you invest, you’re essentially putting your money into something with the hope that it will grow. And while there are many different types of investments, they all have one common goal: to make you more money than you started with. One of the easiest ways to achieve this is through compound interest. Put simply, compound interest is when the interest on an investment generates additional interest over time. For example, if a $100 investment earned 10% in interest annually for five years and then lost 5% per year after that (the rate of inflation), then at year 5 it would be worth $161.
Types of Investments
When it comes to investing, there are many different options available. Some common types of investments include stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Each type of investment has its own set of risks and rewards. For example, stocks typically provide a higher return on your money than bonds. But this also means that they’re riskier since they can fluctuate in value significantly over the course of just a few years. Mutual funds offer you a little bit of everything – stocks, bonds, etc. – which means they’re not as risky as individual stocks but less lucrative than individual stocks. ETFs can give you even more diversification because you’re buying into an index fund made up of multiple different companies instead of just one or two like with mutual funds.
Saving Vs. Investing
When you save money, you are essentially keeping your money in a safe place where it will not lose value. When you invest money, you are essentially putting your money into something with the potential to grow. The earlier you start investing, the more time your money has to grow. This is due to compound interest. Compound interest is when you earn interest on your initial investment plus any interest that has already been earned. For example, if someone invests $100 at 5% and leaves it there for 10 years, they would have $140 after 10 years. If they invest $500 at 5% and leave it there for 10 years, they would have $700 after 10 years. It may seem like an insignificant difference but if you invested $10 every day at 5%, you would have over 3 million dollars after 50 years!
How To Get Started
When it comes to investing, there are a lot of options and strategies to choose from. But no matter what route you take, the earlier you start, the better. That’s because of the power of compounding interest. Simply put, as time goes on your money has more time to grow. The longer you invest your money the more compound interest will work in your favor.
