The 10 compound interest examples in this article give you the basic to intermediate knowledge to utilize compound interest to grow your wealth.
What is Compound Interest?
If an investor puts $1,000 into an investment that earns 5% annually, that investment will pay $50 in year 1.
The calculation is the same whether you start with $0.01 or $1 billion. But it only compounds if you reinvest the earnings (or hold for capital appreciation).
Why Compound Interest is Important
For the first example above, think of it as an interest-bearing savings account (if you can dream of one paying 5%).
In the real world, scenarios are far more complicated because investment values fluctuate by the second, and our savings and new investments change based on income and spending.
A hypothetical constant interest rate that would be required for compound interest to turn a given present value into a given future value in a given amount of time. Continue reading “10 Compound Interest Examples and a Free Spreadsheet”