Compounded growth over time is key from "summary" of All About Index Funds by Richard A. Ferri
When it comes to investing, one concept that cannot be emphasized enough is the power of compounded growth over time. This concept is often overlooked or underestimated by many investors, but it is absolutely crucial for long-term financial success. Compounded growth is the idea that your money will grow exponentially over time as you earn interest not only on your initial investment, but also on the interest that has already been earned. This means that the longer you invest your money, the more it will grow, thanks to the snowball effect of compounded growth. For example, let's say you invest $1,000 in an index fund that has an average annual return of 7%. In the first year, you would earn $70 in interest, bringing your total investment to $1,070. In the second year, you would earn $74.90 in interest, bringing your total investment to $1,144.90. And so on. Over time, the amount of interest you earn each year will continue to increase, resulting in significant growth in your investment. The key to making compounded growth work for you is time. The longer you leave your money invested, the more time it has to grow and compound. This is why it is important to start investing early and to stay invested for the long term. By doing so, you give your money the opportunity to grow exponentially and to build wealth over time. In the world of investing, there are no shortcuts or quick fixes. It takes time, patience, and discipline to achieve financial success. By understanding and harnessing the power of compounded growth, you can set yourself up for a secure financial future and reach your long-term financial goals.
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