GERO Enterprises

THE POWER OF COMPOUND INTEREST

June 15, 2009

One of the most brilliant mathematicians, (Albert Einstein) of our time was quoted as saying, “the most powerful force in the universe is compound interest”. Do you know why?

Compound interest is perhaps the most unrealized secret to wealth that most people don’t realize and yet even fewer understand.

Did you know that if an individual who was 20 years old, had an initial investment of $10,000.00 at an average rate of 5% per year, that investment would turn into over $70,000.00 by the time they were age 60?

Now let’s take the same 20 year old individual and say he had credit card debt of $10,000.00. Today’s average credit card interest rate is 14.67%, (per http://www.indexcreditcards.com/) and that’s historically low! $10,000.00 at 14.67% interest per year would become $2,387,770.05 at age 60! That doesn’t even account for late fees!

The overall difference between the individual who invested 10k vs. the one who owed 10k would be $2,458,169.94.

This is exactly why it is so important to not only save but to invest. At all cost avoid debt, particularly credit card debt.

NOT ALL DEBT IS BAD

Let’s face it. Most of us don’t start out with enough money to purchase a home. In order to purchase that home, you’re going to have to finance it. In this case owing money is isn’t all bad.

First, home owners get to claim the interest they pay on their taxes at the end of the year.

Second, your home value is likely to accrue interest at 5% per year.

Third, if you rent, your monthly payment is very likely to go up annually.

And finally, when you finance, you should eventually pay it off.

THE POWER OF COMPOUND INTEREST