… and how it may be the most important for YOU.

Compounding. Albert Einstein called it the 8th wonder of the world. And for good reason. It is the bedrock of all investing, and the reason why time becomes the most powerful ally in the process of getting to your long-term financial flexibility. 

In simple terms, compounding is the concept of money making money. 

Each time some gain is made, that return becomes part of the base for the next time period. While initially it may look small, over time that gain adds up and makes a HUGE difference. For instance, assume you started with $200 and left half of it in a simple interest yielding 10% a year, while the other half you put into a compounding return investment yielding only 5% a year. Over a century the simple interest investment would have become 11 times. Not too shabby. The compounding one? 130 times!

When I speak with young people, who have advanced degrees in math and the like, I am amazed at the limited understanding of compounding. It is easy to dismiss the initial years of slow build up and end up missing the HUGE gains in later years.  

If a genie was to offer you a choice of a million dollars or a single dollar in a box that would double every morning for 30 days, take the box. It will be worth more than a billion. It would have crossed a million on the 20th day and from that day on each day would drive exponential returns. 

Now before you think these examples are theoretical, let’s use a real life one. The S&P500 index has returned an average of more than 10% a year over a century. Imagine you just buy that index, every month, with $250. Over a few decades it balloons to more than $1.5 Million. 

And the best part? You didn’t have to actively do much. A standing investment instruction that invests $250 each month from your account in the most well-know and simple indexed fund. Beyond that, the only task is to patiently let it work the magic.

Are you going to start off people you love on this NOW? 

#CLIFF #ComfortableLivingInFinancialFlexibility