Compounding interest
The 8th Wonder of the World….
Can you guess what it is?
No, it is not the pyramids, or Angkor Wat
It's compounding interest
Or for the sake of this article
The power of compounding
“Compound interest is the eight wonder of the world.
He who understands it earns it. He who doesn’t… pays it”
Said Albert Einstein
This holds true with compounding interest, but also with compounding action and activities
Habits
Another fairly switched on bloke said something similar
“We are what we repeatedly do, therefore, excellence is not and act, but a habit”
I think this one was Aristotle
Let’s have a look at some example of how interest compounds in different areas;
Financially
Habitually
Property
Financially:
£10,000 invested in to stocks and shares today, at 7% growth per annum, would be worth;
£14,025 in 5 years
£19,671 in 10 years
£38,696 in 20 years
£76,122 in 30 years
What if you started investing £500 per month?
£34,504 in 5 years
£82,898 in 10 years
£245,972 in 20 years
£566,764 in 30 years
Habitually:
James Clear in his book ‘Atomic Habits’ talks about the importance of small repeated behaviours
‘compounding’ to create the outcome you want.
He focuses on three components;
Small habits make a big difference
Forget about setting goals - focus on systems
Build identity based habits
“Its easy to overestimate the importance of one defining moment, and underestimate the value of making
small improvements daily….
The difference a tiny improvement can make over time is astounding
If you can get 1% better each day for one year, you will end up 37 times better (the power of compounding
in action)
It doesn’t matter how successful you are right now.
What matters is whether your habits are putting you on the path towards success”
Property:
Below is a table that shows what happens to your available equity in a portfolio if property prices rise by
5% per annum
This is the financial reward, but you can also take some of James Clears words of wisdom
And create habits that increase your knowledge
Build your skill set
Move you 1% closer to your goal each day
I still try do this with reading and educating myself
Below are some books I recently ordered - and am trying to create habits that allow me to read more
Level up
You can do the same
If you are interested in starting or building a portfolio but are unsure on how to start?
Drop me a message back and lets have a chat
Think a friend would like this? Forward it their way.
Have a great weekend ahead,
Callum