Investing Compound Interest – The Secret Weapon For Building a Retirement Nest Egg

investing compound interest

Compound interest is an investor’s secret weapon and the basis for building a retirement nest egg. Unfortunately, the average American doesn’t understand it. Brooklyn Law School Professor David Reiss likes to illustrate its power by telling a riddle. If he had invested $10,000 in Berkshire Hathaway in 1965, his investment would now be worth $197 million. The power of compound interest is a concept anyone can benefit from.

Investing with compound interest will increase your wealth over time, especially if you invest with a high initial principal. It’s especially effective if you use more than one compounding period. That way, your total returns can build exponentially. When comparing two different investments, keep in mind the interest rate and the compounding frequency. Higher interest rates will add more interest to your money with each cycle.

The power of compound interest can make your savings grow exponentially. Compounding occurs when earnings are added back to the original amount. This process continues as long as you invest in the same asset. The longer the compounding period, the higher the amount you can earn. Investing compound interest is the most powerful force in the universe.

Compound interest can be a great tool when investing, but it can also be a major pain if you’re in debt. High-interest credit card debt can stack up over time. Compounding can make it difficult to pay off your debt, but it can make it easier to invest and save money when you can.