Do you know who said compound interest is the 8th wonder of the world??
If you answered Albert Einstein, you are correct!! Einstein is reputed to have said, ‘Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.‘
Let me illustrate the multiplier effect of Compound Interest. Take a quick look at the table below:
The Double Quiz
To illustrate Compound Interest further, let’s consider this.
Suppose you are given a choice of a million dollar or a magic 1-cent coin that can double in value every day for 30 days, which would you choose?
Most people would choose the one million dollars. However, if you take out your pocket calculator or excel spreadsheet to do the mathematics, you will soon realise that on Day 30, that 1-cent coin will be worth $5,368,709!!
A few key observations…
Initially, it doesn’t look like much at all. In fact, even at Day 15, it’s only $164 and at Day 20, only $5,243. The magic power of compound interest becomes evident after Day 25. It moves to $168k and then $1.3 million (Day 28) and then $5.4 million at Day 30. Exponential growth!!
In other words, we need to start saving/investing early, and we need to leave it saved/invested for a long duration for compound interest to manifest itself evidently.
Imagine if you have stopped at Day 20 and restart again for another 10 days. You would only get $5,243 (Day 20) + $5 (Day 10) = $5,248 INSTEAD OF 5.4 million, although it was still 30 days in total.
This is what Einstein was talking about. If you understand Compound Interest, you earn it (i.e. you will not take out after Day 20). However, if you don’t understand it (i.e. you withdraw after Day 20 and start again later on), you pay it (i.e. you lose out on its earning potential).
Mistake of Cutting Down Investing Years
Another way to look at the 30 Days illustration earlier. Supposed that each day is actually a year. When we start working, we roughly have 35-40 years of working life before we retire.
If we do not start saving/investing the 1st year we start working, we actually cut short the investing years we have before retirement. This reduces the time for Compound Interest to work its magic for you. Don’t start saving/investing after 10 or 15 years of working. Start immediately.
Like I shared in my earlier article, you got to pay yourself first. Make your money work harder for you.
Starting with $1,000
Now suppose you start with $1,000 and it doubles every year. How many times does it need to double to reach a million dollars?
If you answered 10x, you are correct. Look at the table below, where I’ve also included different starting amounts.
But can you double your money every year?
Unless you have something that gives a 100% return on investment (ROI) per annum, you won’t be able to double your money every year.
That begs the questions:
1. How long does it take for me to double my investments at the various ROIs?
2. How long will it actually take for the investments to reach $1 million?
These are answered in the tables below:
Where can we find investments with such high ROI?
That’s the next logical question to ask so that the power of Compound Interest can be maximised. Let me share my experience with a few managed private Forex funds (MPFFs) that have been giving me consistent good returns (ROI) so far.
Definitions:
“Managed“: Meaning you do not need to know how to trade. Professional traders will be managing your investment for you. Ideal for busy working adults who have no time to trade or learn how to trade. This is leveraging other’s time and skill to make your money work harder.
“Private”: While these managed private Forex funds (MPFFs) can be available to all who wants to invest, I’m calling it a “private” Forex fund as it is only available to you if you are referred by any investor who has an IB (introducing broker) account that has access to the said Forex fund. You will need to register for the free brokerage account with his/her referral ID in order to gain access.
- MPFF#1
– fund started in Dec 2013 (been around for a while)
– ROI around ~30%+ per annum
– trades gold spot price against the USD
– perceived as safer and used as a hedge against the volatility of the market (whether that is true, I leave it to you to decide)
– minimum investment: USD3,000
– read more here. - MPFF#2
– fund started in Feb 2019
– ROI around ~70%+ per annum
– trades USD/CAD, AUD/USD, EUR/AUD, NZD/USD and EUR/JPY
– minimum investment: USD1,000
– read more here. - MPFF#3
– fund started in Feb 2020
– ROI around ~70%+ per annum
– trades gold (XAU) and silver (XAG) against the US Dollar (USD) and Euro (EUR) currencies
– minimum investment: USD1,000
– read more here.
My ROI for these 3 investments as of 24 October 2020
Here’s the rough tabletop spreadsheet calculation of my investment returns…
Note: I will be getting my invested capital back in another ~4 months for MPFF#2 i.e. doubled. If I leave it in to be reinvested, Compound Interest will do its magic and deliver me USD 1 million after it doubles 10 times. Start investing when you are young to truly see the power of Compound Interest.
Why start with so little?
Some of you who are reading this might be asking why I am using such low starting figures/investment amount in my earlier examples above to illustrate the returns.
Well, the answer is simple. I am writing this to give hope to the majority who may not have a lot to save/invest. Even starting with a small amount, at the right ROI, it can make one a millionaire over time. All thanks to the power of Compound Interest!
For those who have a lot to invest, just consider investing based on the rule I shared earlier. Invest no more than 5% – 20% of your overall investment portfolio in Forex funds. You can find the rule in this article: 5 Forex Fund Investment Pre-requisites.
Summary
We can make Albert Einstein proud by earning Compound Interests instead of forfeiting it. Start saving/investing as early as possible and apply the pay yourself first principle monthly.
Over time, the magic of this 8th wonder of the world will work for you in ways beyond your imagination.
Last but not least, please note that I am not a qualified financial advisor and do not claim to be one. The article is written for information only and should not be constituted as financial advice. Please consult your personal financial advisors before making any investments.
Closing Remarks
I would love to hear what you think about this 8th wonder of the world and how Managed Private Forex funds (MPFFs) can play a role in accelerating even more Compound Interests. Enter them in the comment box below.
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