Leverage Your Savings With The Power of Compound Interest

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I’ll keep this article short and sweet.  As people live and work longer, it is very important to save for the future.  You may not be able to save much initially, but it’s important nevertheless to put aside a small amount of money away per month anyhow.  Of course, you could just put your savings under a mattress, but that money is just not going to grow.  Moreover, when prices go up due to inflation, your money would actually be worth less in the future.  In short, the mattress plan stinks!

The challenge here is to grow your savings into even more money and this is where the power of compound interest comes into play.  Let’s say for example you have £1000 to save at 5% invest in a market index fund.  After year one, that grows to £1100, £1210 after year 2 and so on and so forth.  This method of growth is known as compound interest or more accurately compound growth, and is a very easy way of rapidly accumulating growth by reinvesting your gains.

Take Anne Scheiber for example, a 51 year old retired IRS estate auditor who demonstrated the power of compounding to great effort.  Investing $5000 of her savings in the stock market in 1944, her portfolio grew to a staggering $22 million by the time she died in 1995!  Even if you were to invest the same amount in the S & P you would have accumulated around $6 million in the same period!

In summary, you need to make a habit of putting aside some money to save and accumulate for your future.  The easiest way to do this is to put your savings into a low cost broad common stock index fund such as the S&P 500.

Like this post?  You may also like my article on indexing and how to save a million dollars

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