The 7 secret keys to wealth - Key #7: Compound Interest.

Tuesday, August 11, 2009
This article is one out of seven that I wrote about wealth. The whole series contain a lot of free valuable information about key factors that can help you become wealthy. The rich do things in a different way. That difference is the one I want to explain here. Let's scrutinize together these strategies that can make you more money and help you boost your income.

The whole series contain the following articles . . .

1. Add Value.

2. The Multiple Streams of Income.

3. Passive Income.

4. Residual Profits.

5. Leverage.

6. Specialization.

7. Compound Interest.

Here I will refer to the magic of compound interest. This is the last article on a series that I wrote about wealth. Compound interest is one of the greatest wonders ever discovered by humans. It works like magic. Albert Einstein himself was amazed at the results.

I will give you a few examples for you to start thinking. Let's say that you discover a method to double your money every day without risk. So, you get a penny and invest it. Next day you have two pennies. You invest those two cents. The third day you have four cents and you invest them again. You keep doing this for thirty days and at the end of that time you will have $10,737,418.24.

That's close to eleven million dollars within thirty days starting with one measly penny investment! Do you see why I say that this is an amazing discovery.

There is a legend about the origins of the game of chess. The story tells about a king who was bored to death because he had seen everything and nothing satisfied him. Then one day a man appeared on his kingdom and asked to see the king. The king had offered a reward to anyone who showed something fun to him that made him change his mood.

This man showed the king how to play chess. He compared the game to a battle between kings and showed him the rules. The king was so happy with this fun game that he offered the man anything he wanted from his kingdom. It could be gold, land, anything.

Then the man said: "Your majesty, I only want two bags of wheat for the first square of this game board, double that amount for the next square, double that amount for the third, until the 64th. The king said: "No problem. I am one of the richest kings of the world." He asked the managers of the palace to give the man what he was asking for.

They made a few quick calculations and said: "your majesty, with all your respect, even if we could sow the entire Earth and leave no space to walk on it, there wouldn't be enough wheat in the world to pay the amount this man is asking for."

He had just showed the king another marvelous thing. He had just showed him the mystery of compound interest. This is how investors become rich. This is what I tell you about in my other articles on this series where I mention the phrase of increasing your profits exponentially. Also I call it getting ever increasing multiple streams of passive income.

Some sources of income are completely passive like some liquid investments. Of course, investors also spend time conducting researches so they can make wisest decisions, but compared to other sources of profits, these are virtually completely passive. Some people become rich by using compound interest alone. They invest their money and double it over time. Then they invest it again and again and again until their nest egg grows very big.

Unfortunately there is no known method to double your money every day, nor every week, and I don't know of any method either that you could use to double your money every month without risk. In fact it is as the saying goes: "no risk, no reward." Often the higher the reward, the higher the risk.

Anyway, compound interest is so amazing that if you can double your money every two months and you start with $1,000, you will have over $4,000,000 in about two years. Even if you could double your money every 3 - 5 months, you would be able to retire rich, (even if you start with a ridiculous low amount) within a few years.

People risk their shirt on the financial markets. They offer a chance to young investors to risk it with the side effect that if they make it, they make it. Unfortunately most people lose their shirt on the financial markets. The reason is simple. They approach the markets with a gambling mentality instead of a trading mentality.

Even traders lose money from time to time. Compounding your investments could be very risky. It is a dangerous strategy. Other fields seem more secure but if I choose to compound my investments on the financial markets I better make sure I understand that I can lose it all quickly.

Throughout the years I have seen the following environment taking place. If I expect to make a lot of money quickly, I lose. If I expect to make a little at a time, I make a lot in the long run. What do experienced investors do? They combine aggressive investments with those that seem more secure. They diversify just in case.

Anyway, one important rule about investing and compound interest in general is to start early in life. The earlier you start, the greatest your chance to make a lot in the long run. The problem is that the majority of people can't stand to save something today to get it back in ten years. When you are young, you just want to live your life, have fun, enjoy.

Also young people may have less money than those who are already advanced in their careers. But then, once you start to change your mind and you have the money to invest, it is already a little late. As you can see on the graphic above the secret is to start early. The earlier you start the less money you need to invest.

Some investments are safer than others from my point of view, but I can't advice you of anyone particularly. You have to do your own research. It is your decision. In fact it is your decision whether to invest or not to invest at all. I simply wanted to show you how amazing this concept of compound interest is. This is certainly one of the 7 secret keys to wealth. By the way, now it is not a secret anymore, because you know about it.

I hope this article have been helpful to you. You can read my other articles about this subject on my website if you have not done so already. These seven articles contain key aspects that usually make people rich. But it is not the information what changes lives, it is the attitude. When your attitude and choices start to change, things around you start to change also.


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