I am recently watching videos about investing and financial freedom. I usually hear people like Tony Robbins say that compound interest is such a great thing. It is a wise way to invest your money for a long period of time. I have heard it from several others as well. But I have no idea which investments give us compound interest. I was hoping if you guys know about it and I would be very happy to be educated about it. I am in my early 20s and want to make right decisions for secure and prosperous present and future. I would really appreciate your words and advises. Thanks
Compound Interest is nothing but Interest earned on reinvesting the interest already earned. Sounds complicated?? Suppose you have $100 in your pocket and you decide to invest it into a bank. Bank gives you 8% interest per annum compounded annually. Now, the thing is at the end of first year you would have $110 as you have earned 10% interest. Now you decide to let the money stay as it is and reinvest it. Now the bank would give you interest @10% on $110 because that is your new principal at start of year. So the interest will be $11 instead of $10. This is the compounding effect. This effect grows as the time duration grows. Every investment can give you compounding effect if you don't en-cash your earnings and use it somewhere else. Best investments using compound effect are Mutual funds, shares etc.