MAKING THE DECISION TO CONTROL YOUR MONEY (PART 2) REBECCA RICE
The profitability of compounding
interest works regardless of
interest rate. The higher the
interest paid, the faster the
growth. The more frequently
interest is compounded, the
faster
it
grows.
Interest
compounded daily grows faster
than
interest
compounded
monthly, quarterly, or annually.
Banks, for example, will charge
you interest on your loans compounded daily (more money for them). And they will pay you interest on your
savings quarterly (less money for you).
You can go to http://investor.gov/tools/calculators/compoundinterestcalculator and check out different results.
Plug in your current principal and optimal monthly additions. See how much your money will grow over time.
Yes, compounding interest is profitable. But how can you get it? You know banks are paying nearly zero
interest on accounts. Bonds and stocks have higher interest or dividends, but the underlying asset is subject to
risk and market swings.
What good is earning 8% on $10,000 in stocks and
bonds, when the underlying $10,000 might drop to
$6,000? When you add market fluctuations into your
compounding interest growth, you end up with
remarkably less money.
Figure 1.4 shows compounding when you include stock market losses that reduce your capital.
Uninterrupted, this same 8% yield would give you over $9 million! (See Figure 6.2 in Chapter 6 of the
book)
Where Can I Find a Secure Place to Earn Uninterrupted Compounding Interest?
What investment or savings institution is free from market fluctuations?