Save It means making certain sacrifices that, over time, will bear fruit. Being constant we will get gather a considerable amount of money without hardly realizing making adequate financial decisions. It is not just that organizing periodic contributions to an account helps us, but to do it, for example, to compound interestcould help us multiply your performance.
In this sense, the university professor and economist expert in investments, Xavier Brunencourage the youngest to start saving as soon as possible so that the effort is less. Recognize that putting 1,000 euros on an investment fund With an average annual return of 8% for a decade, for example from 20 to 30 years, That investment will have become 200,000 euros when they reach the retirement age.
“But that investment fund from time to 8% gives you 10%, Those 10,000 euros becomes 400,000“, explains. This transforms an initial investment of just 10,000 euros in almost half a million, doubling the figure of the first scenario. However, before entering the financial world, it is important Know what the compound interest is and how.
How compound interest works
It’s about A tool that allows combine the interests that are gained after investing with the capital on which said performance is applied. Therefore, the basis on which the interest rate is applied (provided it is constant) increases, and with it the earnings of the investment.
It must be recognized that the unpredictability of the market plays against this profitability, which in a few times can be very high and in others collapse, so it will always have to be considered a middle ground. Yet, Composite interest is a very powerful mechanism to use in pension plans.
Consider that an 18 -year -old person invests 2,000 euros at the beginning of the race. With an interest of 4% will be 4,000 euros 18 years lateror what is the same, when I am 36 years old. Taking into account that he lacks, approximately 30 years to retire, we see that he will have a financial mattress rather than bulky when the time comes.
“The eighth wonder of the world”
Brun refers to “The magic of composite interest” as if it were “the eighth wonder of the world” Because of their ability to multiply savings automatically reinviring the generated yields that, in turn, generate new interests, as if it were a snowball that grows with effort, perseverance, time and dedication.
