Power of Compounding

So what is the power of compounding and what can it do for you?

From Secrets of Self Made Millionaire.
Many of us have heard of this famous quotation by Albert Einstein, the greatest genius of all time. He said that 8th wonder of the world, the greatest scientific mathematical discovery ever developed by men has been the power of compound interest.

So what is compound interest all about? Compound interest is when you leave money in a certain stock or a certain investment vehicle, you don’t take out the returns and leave it inside. So the next year, the return you get, although it’s the same percentage return, but it’s a percentage return on a greater sum. And the following year, again you leave the returns and interests inside. So the percentage returns again, on a greater sum. And that’s how it snowballs.

Earn $1000,000 while sleeping…

From Law Of Attraction (The Secret)
“Even one dollar can turn into a million dollars in a certain amount of years at a certain compound interest rate. One dollar, just one dollar, can grow into a million dollars all on its own without your intervention. You would be pleasantly surprised to know that a single dollar placed into an investment that grows at 20% a year will become $1 million in 75 years. That is just one dollar! All you would need to do is leave it alone, go away, go to sleep for 75 years, just leave it alone. When you return it will be $1 million without any effort from you, other than your placing that single dollar at the beginning!

Now, if instead you put in a dollar every single day into the same 20% a year growth investment, you would end up with $1 million in 32 years instead of 75. In fact, a dollar a day would become $1 billion in 66 years at a 20% a year growth rate. A higher interest rate would dramatically shorten that time.

This shows you that you can never have too little to start with. Whatever your income today, force yourself into the habit of investing 10% of your income before you pay bills or taxes or anything else. Pay yourself first - it is your money and your life. And it gets even better. The 1990s was an era where stocks rose phenomenally. In the 1990s decade, over 200 stocks rose by1000%, some by up to 20,000%. Many fell again in 2001 but on the long-term, all good companies always rebound to even higher heights. People in the 90s invested various amounts and found themselves wealthier for that. Some invested just $50 a week, and if that was their 10%, that was good enough. It grew. Others invested more. $10,000 invested just once at the beginning of 1990 in certain stocks turned out to be valued at around $5million by the end of the 90s. Others turned a few million dollars into well over one billion in the same period. All this wealth growth happened without any extra effort except putting money away into the investment.

These people were not doing anything secret - they were investing in publicly available investments. They were investing in well selected shares in the stock market - and anyone can do this. You can do it as well starting now. Just remember, choose your investments well, invest consistently, and put 10% aside from every single paycheck or income. Consistency is the key. Compound interest will always work for you without asking anything from you. Your only part is to be consistent, to choose good investments, and to stay put on the long term.”

How To Choose A Good Investment?

Here comes the tricky part. How do we choose a good investment? We will go in-depth in the later part of the course. We have started out investing using the technique in Adam Khoo’s Secrets of Self Made Millionaire method. He adopted the technique from Warren Buffett the richest investor in the world. There are basically 2 main steps in investing:

1)Find a Company With a Durable Competitive Advantage
2)Buy it at a discount (when its stock price is lower than it is truly worth).

How do you go about doing that? We will show you how we do it in the 5th part of our free course. At the same time, I will strongly suggest you either grab a copy of Secrets of Self Made Millionaire or this book called Buffettology.