How to take advantage of compound interest

23 Sep 2019

Hopefully, most individuals have heard of this term before and are making use of it in their investment portfolios. Compound interest could potentially help you save hundreds of thousands during your lifetime if you start early enough.

What Is Compound Interest?

According to Investopedia, compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest, which is calculated only on the initial amount.  

Albert Einstein called compound interest the eighth world wonder, and for good reason too.

Most investment products these days eg. savings and retirement plans etc. are based on compound interest. More interest means more money to buy funds, stocks, bonds etc. 

Example of initial investment amount of $1 000 with simple interest and compound interest over 20 years. You will notice that most of the interest is earned towards the end of the investment term as the larger the amount, the larger the compound interest earned.

(thecalculatorsite.com)

Compound interest could significantly boost investment returns over the long term. The earlier you start, the more your investment grows. It is also important to check when the interest on your investment is compounded eg. daily, monthly or yearly. This could affect the returns on your investment.

Any capital investment you make is always a risk and there is no guarantee of future earnings

Benefits

•    It is a potent factor in wealth creation
•    Accumulate better returns than with simple interest
•    Growth earned on compound interest helps mitigate eroding factors such as inflation, cost of living and reduction of purchasing power
•    Ideal for long term growth such as for retirement planning

Contact your deVere adviser to discuss the various ways you can save or invest in compound interest related products whether its for retirement or saving for something specific. [email protected]

Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.