Copyright 2005 William Tan
"The most powerful force in the universe is compound interest"
- Albert Einstein
Ask almost anyone about compound interest and you will hear them say "yeah, I know about it." If everyone truly understands what compound interest is, then we probably will not have so many people having credit card debts that is piled up to the ceiling. The sad truth is the financial sector is using this to their advantage against general public. They are making millions and millions from the people.
So what is compound interest?
To explain in the simplest way - basically interest paid on interest and principal over a period of time. If you have $10,000 today, and you make 3% per year from you bank, you would have $10,300 by the end of the year. If you continue to leave your money there for the 2nd year, you will now have accumulated $10,609. 3rd year - $10,927. So on and so forth. By compound interest, you are actually making your money work harder for you. $10,000 compounded yearly at a 10% per year will double your money in 7 years. In 28 years, you would have about $160,000.
$160,000 from a small amount of $10,000!
While all that sounds really nice and cool to be financially free when you retire - seriously, who would want to wait around to be that old to be finally financially rich? I certainly wouldn't be in that crowd. So how do we get this working for us?
Notice, how credit card charges can work against you? Or how your bank is telling you that they calculate interest daily that is supposedly to your advantage? Start to have an idea. The large corporations are the one that are using this powerful tool to their advantage.
And what do we get? Well, mutual funds and stocks, typically, only provide yearly dividends. Likewise, the banks on their fixed deposits - yearly - with pathetic interest rates that is normally lower than inflation rates. You get a raise only once or at the most twice a year. Almost anything, which is to our advantage, is compounded on a yearly basis. So how can we make use of this incredible force to help us in our goal to achieve financial freedom?
For compound interest to work for us, we have to see frequent compounding. The more frequent the better it is. Half yearly compound is definitely better than yearly. Quarter is better than half-yearly. Compounding by the seconds would be most ideal and compounding interest over a long period would really magnify its power. So, when you want to see the real power of compound interest and to start getting your hard earned money working for you, you need to choose an investment vehicle that can provide:
* Excellent returns (minumum 5%)
* Frequent Compounding (at least monthly)
* Low Risk with High Winning Percentage (90% or more)
* Allows you to withdraw whenever you want (stop anytime - liquidity)
Start having your dollar work harder with compound interest and financial freedom is really not far away.
About the Author
CASHFLOW AVENUE is established to provide Low-Risk Options Trading Recommendations to the common traders in their pursuit of financial freedom and a better lifestyle.
http://www.cashflowavenue.com
