Do you want to know the secret to amassing great wealth, while earning only a moderate rate of return? Actually, it’s no secret at all. Anyone can do it, and there’s no need to gamble or take big risks. To see your investments build to levels you never thought possible, all you really need is time.
Here’s what I mean. Let’s say your investments grow at about 7% per year over the long term, historically a very achievable target for investors. Growing at 7% per year, your investments will double every ten years or so. $10,000 invested now, and growing at 7% per year, will be $20,000 in ten years, $80,000 in 30 years, $320,000 in fifty years, and a whopping $1,280,000 in seventy years. All this from a one-time $10,000 investment – consider that many investors already have far more than $10,000 saved! What I am referring to is the enormous power of compounding interest on investment returns.
At this point, you might object that you may not have so many years to let your investments grow. And while it is true that you may need to begin drawing on your savings, a portion of your nest egg may be around for longer than you might think. With continuing medical advances, many who read this could live to be 100. If any part of your current savings can last until you are 100, then you have the ability to utilize the power of compounding interest for at least as long, maybe even longer.
A lot of investors focus on the rate of return – working hard to obtain greater-than-average returns without too much risk. There’s nothing wrong with trying to boost investment returns – I myself have successfully utilized such a strategy. But my point here is that spectacular returns are not necessary for long-term growth, if an investor is patient and allows time to work its magic.
In other words, there’s no need to get rich quickly when you can get rich slowly. If you’ve been investing for a few years and still don’t see much growth, be patient. Stick with it a little longer. Someday, you are going to look back and be amazed at the really big impact a little thing like time has had on your investment portfolio.