Do you want to grow your $1 to $1,000,000,000 in 31 days?
(That’s 1 billion with a B.)
How? Easy. You just have to double your money every day for 31 days.
But is this even possible, you say? After all, on Day 10, you’ll only have $512. Not even close to $10,000, much less $1,000,000,000.
But if you keep doubling your money daily, by Day 21 you will have a little over $1,000,000. A respectable sum, but still far short of $1,000,000,000 – by 100,000%. And there are only 10 days left.
But keep doubling it and on Day 31, you will indeed have $1,000,000,000. Well, $1,073,742,824 to be exact.
This is the magic of something called “compounding interest.” It is so powerful that Einstein called it the “Eighth Wonder of the World.” The idea that money begets money over time.
Okay, clearly there’s no way you can double your money daily. In investment talk, that’s 100% return per day, or 36,500% return per year.
But, over the long run, you can realistically get 6% or 7% a year from investing.
(But do let me know if you find an investment opportunity that doubles every day. In return, I’ll invite you to a party on my luxury 180-foot yacht.)
For a more realistic scenario, let’s say you want to save a million dollars by the age of 65. How much should you save each year, assuming a 7% annual return?
If you start at 25, you need to save $4,681 a year.
But if you start at age 35, you need to save $9,894 a year. That’s more than double with only a 10-year difference!
What if you start at mid-point at age 45?
You have to save a whopping $22,797 every year to reach $1 million by 65. That’s almost 5x as much as starting at 25.
Why such a huge difference?
You guessed it.
The magic of compounding.
Money begetting money over the long run.
Now let’s say at 25 you hear this advice. So you start saving $4,681 every year.
But life gets in the way and you have to stop after 10 years at age 35. And you can’t save any more after that.
Your buddy, on the other hand, starts saving the same amount ($4,681 a year) but at age 35. They continue saving for 30 years until age 65.
In summary, you start at age 25 and save $4,681 for 10 years.
Your buddy starts at age 35 and saves the same amount for 30 years.
Assuming you both earn 7% annual return, how much do you think you and your buddy end up with at age 65? Any guess?
Your buddy: $473,167
Yep, the magic of compounding at work. Money begets money with time.
Remember how after 10 days there was only $512? Then it went from $1,000,000 to $1,000,000,000 in the last 10 days.
That’s because compounding starts slow and gets turbo-charged later.
So you need to be patient.
Don’t chase sexy investments.
Instead, start early, save regularly, think long-term, and let compounding do the work.
We do not provide legal or tax advice. Readers should consult their own legal or tax advisor. There is no guarantee investment strategies will be successful. Investing involves risks, including possible loss of principal. There is always the risk that an investor may lose money. A long-term investment approach cannot guarantee a profit. Investors should talk to their financial advisor prior to making any investment decision. This information is intended for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.