Investing in real estate using Fundrise is an easy way to start earning passive income.
The concept of compound interest is one of the most powerful financial tools available to investors. Simply put, compound interest is the interest earned on both the principal amount and any accumulated interest. This means that as your initial investment earns interest over time, your overall balance grows exponentially.
To better understand this concept, consider two investors, each starting with $10,000. Investor A decides to invest in a savings account that earns an annual interest rate of 1%. Investor B decides to invest in a mutual fund that has an average annual return of 8%.
After one year, Investor A’s investment has grown by $100. Investor B’s investment, on the other hand, has grown by $800. So while the difference in returns might not seem significant after one year, what happens over the course of several years may surprise you.
In ten years, Investor A’s initial investment has only grown to $11,046. Investor B’s initial investment, on the other hand, has grown to an impressive $21,589. After twenty years, Investor A’s investment has grown to $12,194, while Investor B’s has grown to an astounding $47,128.
The difference between these two investors is the power of compound interest. By earning returns not only on their principal investment, but on their accumulated interest as well, Investor B was able to grow their wealth significantly over time.
So, what can we learn from this example? First and foremost, the earlier you start investing, the better. The longer your money remains invested, the greater the potential for it to benefit from compound interest.
Secondly, higher returns generally lead to greater wealth accumulation over time. While mutual funds and other investments with higher returns may also carry more risk, those who can tolerate the risk might consider them as part of their overall investment strategy.
Finally, the key to successful investing is consistency. Whether you’re investing a little or a lot, the goal is to remain committed over the long term and give your investments time to grow. By harnessing the power of compound interest, you too can achieve your financial goals and build wealth over time.