The compounding effect is the ability of an investment instrument to gain a profit or return, which we then reinvest the profit so that we will get a bigger return. In economic theory, compounding is also interpreted as compound interest. So the earlier we invest, the result of the compounding effect will be greater. Investing regularly eg every month $ 10 will also accelerate the state of a more stable financial condition. Have you made a compounding effect in investment?
Compounding Effects In Investment
- Thread starter Suba
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Using the compounding effect on investment is really good for you. But you should trust the investment method fully for you to compound. Also, you should have another source of income that will cover your expenses while you reinvest your profits.
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I agree with your opinion, the compounding effect can be applied to all types of investment instruments, be it stocks, crypto, bonds and rental yields from property etc. In general, we can invest the proceeds from coupons/bond interest and rental proceeds in other instruments. whereas the returns from crypt staking or Earning interest can be reinvested immediately without charge.
In my view, the compounding interest concept does not need to apply only to monetary investments. I am thinking of someone who chooses to invest by planting 1000 tree seedlings worth 10,000 USD. Over time, these seedlings grow into trees. The value of these trees then keeps increasing. By the 20th year, this person may be owning trees worth at least 100,000 USD.
Yes, I currently make compound interest in different investments, the fact is that if you invest periodically in an asset that tends to revalue you can also generate a compound interest, the best thing here is to make a DCA strategy, you could also do it in those assets that generate a stable annual return, such as bonds, dividends, or cryptocurrency staking among others.
You are absolutely right, compound interest makes its true and noticeable effect in the long term, if you cannot maintain that investment in the long term, you will not be able to see the true effects of compound interest.
Compounding is a good way of growing your investments. It is when you delay receiving the rewards for your investments so that it can grow. It takes discipline to be able to compound.
Yes, there really are many scam sites today, you should investigate very well where you are going to put your money to work in order to really sleep peacefully and without fear.
You can always invest in stock index that have given an average return over time and that encompass the best companies and so you do not have to worry so much, such as the sp500, the nasdaq the russell 2000 etc, as long as you are going to invest in the long term, the sp500 has tended to give a historical return of annual 8% if you invest periodically in it you could generate a good compound interest throughout of time.
There are many other ways of earning money apart from compounding interest. Please note that interest damages the economy of a country and this is why it is also prohibited in many religions like Islam. You may have noticed that a high interest rates may never benefit many big economies as well.
There are interests that come from work and not only from speculation, that is, if you put your money to work in a company and it generates annual returns consecutively of 10% each year and you continue to add money is a real and healthy interest since it has been produced by the work of the company and the good performance of this creating new jobs, expanding the company and improving the economy in which it operates, not all interest gains are bad, although I understand your point as well.
I think that the disadvantage of increasing interest rates outweigh the so-called "benefits". When the rich countries increase the interest rates, this creates more economical pressure on countries that are already in depth. This increases economical instability as the economical structure gets negative affected and the currency's value decreases and this adds more burden to the poor people living in poor countries.
Of course, but in this case you refer to the interest rates that banks assign to the money lent by them, which makes the money expensive and more difficult to finance to individuals and companies, which can cause very large damage to the economy, in this case those interest rates are bad in the long term, But in this case I am not referring to those types of interest certainly.
