How Compound Interest Works (And Why It’s So Powerful)
“Making money while you sleep" isn’t just a dream—it’s math.
What is Compound Interest?
Compound interest means you earn interest on both your original investment and the interest that investment has already earned. It’s interest on interest.
Simple vs. Compound Interest
Example: $1,000 invested at 5% annually for 10 years
Simple Interest: You earn $500 total.
Compound Interest: You earn $629.50 total. That’s $129.50 more, just by letting the interest compound.
How to Earn Compound Interest
Here are some common ways to benefit from compound interest:
High-yield savings accounts: These pay interest monthly or quarterly and reinvest it automatically.
Certificates of deposit (CDs): Fixed-term deposits that pay interest, which compounds over time.
Retirement accounts (e.g., 401(k), IRA): Investments in these accounts grow tax-deferred, with earnings reinvested.
Dividend reinvestment plans (DRIPs): Automatically reinvest dividends from stocks into more shares.
Investment portfolios: Long-term investments in mutual funds, ETFs, or stocks that grow and reinvest returns over time.
Why It Matters
Time is your greatest asset. The earlier you start saving or investing, the more you benefit from compound growth—even if you start with small amounts. Starting early gives your money more time to grow exponentially.
Small steps today can lead to powerful results tomorrow. By harnessing compound interest and starting early, you’re setting the foundation for long-term financial growth. At 4Wealth, we’re here to help you make smart, lasting decisions for your future.
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