I used to think that the compound interest effect was just a theory and could not be realized. But when you really understand how it works, you will find that it is the hidden secret of our investment. Those who use it well get rich, while those who don't take it seriously are still short-sighted. Learning and growth are compound interest, and promotion and salary increase are compound interest. After watching this video, you will completely understand why it is so powerful, and it may even change your life!
The compound interest effect sounds complicated, but it is actually very simple. Its core principle is that the investment income is based on the initial principal and the accumulated income in each period thereafter, that is, "interest begets interest". Let me explain it with two examples.
If you invest 10,000 yuan in an index fund with an average annual return of 10%, then in the 30th year, your total assets will reach 174,494.02 yuan! You heard it right, this is the magic of 30 years of compound interest, which is many times more than the original principal. If you don't understand, I suggest you use paper and pen to calculate it.
Let me give you another extreme example, that is Bitcoin. The price of Bitcoin was 1,000 yuan 10 years ago, and now it is 500,000 yuan per coin. It has increased 500 times in 10 years. If you look at its increase in any year during this period, it will not surprise you. During this period, it has plummeted by 80% many times, which makes you feel scared. But if you look at it in 10 years, the return of 500 times is enough to make you drop your jaw. This is the compound interest effect quietly working, and you are completely unaware of it.
So, how can the compound interest effect be applied in actual investment? First of all, compound interest is most suitable for investments with high long-term returns, such as digital currencies, stocks, index funds, etc. The key is to persist in long-term investment, regularly add investment, and patiently wait for time for miracles to happen.
So, how to apply the compound interest effect in investment?
1. **Invest as early as possible**: Time is a good friend of compound interest. The earlier you start, the more significant the effect will be.
2. **Hold for the long term**: Do not buy and sell frequently to avoid high-frequency trading that may cause loss of your capital.
3. **Adhere to regular investment**: Invest funds regularly and in fixed amounts, and stick to it no matter what the market conditions are.
4. **Stay patient and calm**: The investment market is constantly fluctuating, but remember: time is your best friend. Don’t be easily scared by short-term ups and downs and give up long-term gains.
Data shows that most of Warren Buffett's wealth was accumulated after he turned 50, thanks to the compound interest effect. He once said, "Life is like a snowball. The most important thing is to find wet snow and a long hillside." Time and continuous investment are the wet snow and the long hillside.
Albert Einstein said, "Compound interest is the eighth wonder of the world. Those who understand it make money; those who don't understand it work for it."
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