“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” - Albert Einstein
As Albert Einstein quote that compound interests is the eighth wonder of the world, this is the power of money earning for you not you working for money. This is a basic of investing and the main reason why you are investing in bank savings, time deposits, bonds, mutual funds, uitf, stocks etc. etc,
To give you an example, if you have 1000 php invested for an instrument that could give you a yearly interest of 10% ;
An interest of 100 at the end of first year, then next year;
Then at second year, the amount of money you have is 1210 php.
The interest reinvested to your original principal then the interest value keep increasing every year. Many financial advisors advice the young generation to start early to benefits from the time that the investment could accumulate interests.
As an example, let's say Juan 20 yrs old and John 30 yrs old,
Juan can start saving of 285 pesos a month and he wants to retire with one million pesos, at what age Juan could retire?
Juan should look for financial instrument that could give a yearly return of 8%. At age 60, the 285 pesos monthly savings will grow to 1 million pesos.
How about John? let's say he delayed until the age of 40 but he doubled his savings to 570 php monthly with same amount of interest of 8% annual return.
At the age of 60 John will only have 337 980 while Juan is already enjoying the retirement. The only way to catch up with Juan is to invest monthly of 1686 php to have 1 million pesos at the age of 60.
Six times as much as Juan investing monthly of 285 php.
The difference is the "Power of Compounding" , the earlier you save the more you can take advantage of this eight wonder of the world.
Take actions and start early.
P.S. If you want to learn how to earn thru stock market trading,