It’s a common misconception that it takes huge sums of money to create and sustain real wealth, or that only the very lucky get rich.
The truth is, there’s something called compounding returns that makes it possible for anyone to create life-changing wealth. Think of a snowball rolling down a hill. It doesn’t pick up the same amount of snow with each turn; it picks up more and more snow as it gains speed. Before you know it, that little snowball becomes a boulder. Compounding returns do the same thing for your investment portfolio. And that, my friends, is what we call exponential growth.
Let me show you how—with enough time, consistent savings, and patience—anyone can snowball their savings into a mountain of wealth to be proud of.
Time + Compounding Interest = Serious Growth
Believe it or not, what you need more of than a lot of money is plenty of time. Start with whatever you have, even if it is a modest sum, and invest it ASAP.
So, how does compounding work? You earn interest not just on the principal amount invested, but also on the interest you earned in the last period.
If you were to invest just $1,000 today and it grows at 8% in a year, at the end of the year you would have $1,080. If in the second year you earn another 8%, it would be on top of your $1,080, growing your portfolio to $1,166.40.
In 100 years, that initial $1,000 would turn into more than 2 million dollars. And if you were to add just another $100 per month to your savings over the same period, you’d create a 35 million dollar fortune!
Now, okay, most of us don’t have 100 years to wait. But if you’re a working adult, you can sock away a little more savings every month, put it into your portfolio, and accelerate your compounding returns within a time frame that meets your goals.
The sooner you start, the more time is on your side. If you make regular deposits into your portfolio, you’ll see your initial principal compound at an even faster rate. Watch as it grows into a substantial sum, one that can take care of you and your family’s needs long after you retire. The secret is to start now.
I remember watching my own portfolio grow over the first 10 years of investing. Even though I maxed out my 401k contributions every year, it seemed to be taking forever! I wondered how, at this rate, I would ever have enough for retirement? But in the last two decades, I have been surprised—scratch that, AMAZED—at how quickly my portfolio balance grows every year.
Develop Good Habits + Patience
In addition to consistent saving habits, try not to be swayed by the market’s daily ups and downs. If you’re concerned about drawdowns in your portfolio, remember that more than 75% of the time, markets go up. In other words, there are bad days and good days, but many more of the latter. And with compounding returns and enough time, your portfolio will almost always come out on top.
And try to avoid the trap of withdrawing too early. Even a small dip in principal early on can affect your future returns substantially. We’re planning for the long term here, so invest now, invest in yourself, and look to a brighter future (don’t forget your shades).