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Embrace the power of compound interest from "summary" of Investing Basics for Beginners by Razaq Adekunle
Compound interest is a key concept in the world of investing that every beginner should understand. It is the interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. In simpler terms, it means earning interest on interest. When you invest your money, you are not only earning returns on the initial amount you put in but also on the interest that your investment has generated over time. This compounding effect can significantly boost your returns over the long term. The more time your money has to compound, the greater the impact it will have on your investment portfolio. To illustrate the power of compound interest, let's consider an example. If you invest $1,000 at an annual interest rate of 5%, after one year, you will have $1,050. In the second year, you will earn interest not just on your initial $1,000 but on the $50 interest you earned in the first year. This compounding effect continues to grow over time, allowing your money to snowball into a substantial sum. By embracing the power of compound interest, you can harness the exponential growth potential of your investments. It is a powerful tool that can help you achieve your financial goals and build wealth over time. The key is to start investing early and consistently, allowing your money to compound and work for you.- Compound interest is a fundamental concept that can have a profound impact on your investment journey. By understanding how it works and leveraging its power, you can set yourself up for financial success in the long run. So, embrace compound interest and watch your money grow exponentially.
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