Key To Wealth 7 - Compounding

TriVita's ten key steps to wealth explains in simple terms how anyone can create wealth and in this series I will lead you step by step along the way. The 10 Key to wealth was published by Michael Ellison, the CEO of TriVita Inc in 2007.

The Seventh Key to Wealth is Compounding.

The power of compounding is a key that is taught in school, do you remember being taught compound interest in mathematics?

Compounding is when you invest a sum of money and leave it to earn interest which you them reinvest.

Compounding can make everyone a millionaire and here is how, invest 1$ a day at 15% interest and with compounding you will be a millionaire 42 years later, its a simple as that

People often say the rich get richer and the poor get poorer and one reason is the power of compounding. Some people buy stocks and then spend the dividends or else have savings account and spend the interest, but if they reinvested this money the value would grow exponentially.

The current financial crisis in the USA and elsewhere came about by people borrowing against the value of their assets and spending the capital gained rather than reinvesting it. It the usually story everyone wants money now, they do not have the patience to wait.

The earlier you take action compounding the less it will cost you. For example a person invests $1,000 in a retirement fund for seven years at 10% return. He then tells a friend who follows his example investing 1,000 a year for 31 years. when they retire on the same date their pension funds are both $200,000 ,however the first person only invested 7,000 and the friend spent a further $24,000!

David Ogden
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