Cypress Wealth Services
Are you familiar with the phrase “the miracle of compound interest”? As a relatively recent phenomenon, compound interest has changed how people build wealth and has actually made wealth-building more accessible for millions. The beauty of compound interest is that anyone can benefit from its advantages as long as they’re willing and able to invest their money.
Simply put, compound interest means you earn interest not only on a principal amount, but also on the interest you receive. For example, if you invest $100 and earn 10% interest annually, you will then earn interest on $110 during the next compounding period without additional contributions. Then you would earn interest on those earnings, and the cycle would continue.
This compounding effect allows wealth to grow exponentially rather than linearly. There are multiple factors that influence the amount an investment will grow through compound interest, including:
Naturally, the higher rate of interest, the more your money will grow. But higher interest rates are often accompanied by higher risk. Additionally, higher frequencies of compounding will result in greater growth. And because compound interest growth is exponential, the amount of time an investment has to grow is perhaps the most important factor when it comes to wealth-building.
The time value of money concept states that money you have now is worth more than the same amount of money in the future. This is because money has the power to earn interest, so the earlier you receive and start investing that money, the more time it has to grow exponentially.
Consider the example from above: If you receive $100 today and invest it at a 10% interest rate compounded annually, you would have $110 a year from now. Therefore, that $100 is worth more to you today due to its earning potential over time.
To truly understand the awesome power of compound interest, suppose you are able to save $2,000 a month. If you saved $2,000 a month for 30 years in a non-interest bearing account, you would have $720,000 at the end of the savings period.
But if you invested $2,000 a month into a tax-deferred retirement account that earned 10% for 30 years, you would have $3,947,856.54. (*1)
Conversely, if you invested $2,000 a month for just 15 years at the same annual rate of 10%, you would only have $762,539.56. That’s a difference of more than $3,000,000. Without a doubt, the longer amount of time you’re able to invest, the more drastically your wealth can grow.
This is why you shouldn’t wait another day to start saving in compound interest investments.
The power of compound interest should be an integral part of your financial and retirement planning. If you need help understanding and capitalizing on compound interest opportunities, partner with a trusted firm like Cypress Wealth Services. We are dedicated to bringing clarity and confidence to your financial life. Please call us at 866.888.6563 or contact one of our offices to set up a meeting today.
Cypress Wealth Services is an independent RIA firm providing financial planning and investment management to high net worth individuals, families, business owners, and institutions. Cypress Wealth Services comprises professionals with diverse backgrounds and extensive experience and qualifications. Cypress Wealth Services is uniquely qualified to serve a broad range of client needs, and their experience and expertise act as a foundation for their client service process. The firm uses The Second Growth, which focuses on efficiently protecting, growing, and transferring to their loved ones the wealth and legacy a person has already built. With financial advisors in Palm Desert, CA, Tustin, CA, and Anchorage, AK, the firm serves clients across the country in Wealth Management Services, Fiduciary Services, 401(k) Design and Management, Investment Reporting Services, Financial and Retirement Planning, and more. For more information, visit www.CypressWS.com or call 760.834.7250.