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Understand the power of compounding returns from "summary" of The Smartest Investment Book You'll Ever Read by Daniel R. Solin
Compounding returns is a simple concept, but its power is often underestimated. It works like this: when you earn a return on an investment, that return is added to the original investment, creating a larger sum. The next time you earn a return, it is calculated not only on the original investment, but also on the return that was added. This process continues, with each return generating more returns in the future. Over time, compounding can significantly increase the value of your investment. The key to maximizing the power of compounding returns is time. The longer your money is invested, the more opportunities it has to grow. This is why starting to invest early is so important. Even small amounts invested regularly can grow into a substantial sum over time, thanks to the magic of compounding returns. To illustrate the impact of compounding, consider this example: if you invest $1,000 at an annual return of 8%, after one year yo...
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