Compound Interest

Previously we mentioned how to create a money machine. 

By regularly saving money and investing regular amounts into a high Index fund, the investment should grow over time thanks to the effect of compound interest. 

Compound Regular Savings over Time

Adding time to investing is like adding fertiliser to a garden, it makes everything grow.

Warren Buffett wrote - “My wealth has come from a combination of living in America, some lucky genes, and compound interest.” 

Albert 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.”

Understanding Compound Interest 

Use this Calculator to understand the power of regular investments over a period of time. 

Deciding whether to invest or not

The majority of people prefer not to make big decisions about financial decisions since it it is easier to procrastinate and put off decisions until tomorrow.  

Risk warnings

The value of your investment can go down as well as up, and you can get back less than you originally invested. What happened in the past won't indicate what might happen in the future. If you view the growth of the stock exchange over a long term period, you will get a sense of might happen, although there can be no guarantees. 

Panicky Poos

When investors see the value of their stocks go down, they (naturally) panic and sell, and so loose and consolidate the loss in value in their shares. The long-term Index Fund investor sticks with the investment plan and takes a longer term view, so remains positioned to benefit when shares rebound.