Why Compound Interest Is Your New Best Friend
Episode Summary
You might think investing your money is risky, but it's actually WAY riskier to keep your money in cash, thus missing out on the magic of compound interest. Today Allegra explains the simple recipe for investing, highlighting why time in the market and compound interest are a wealthy woman's best friend.
Episode Notes
You might think investing your money is risky, but it's actually WAY riskier to keep your money in cash, thus missing out on the magic of compound interest. Today Allegra explains the simple recipe for investing, highlighting why time in the market and compound interest are a wealthy woman's best friend.
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Transcript
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Einstein had a lot of great quotes, but one that isn't talked about enough is this one. Compound interest is the eighth wonder of the world. She who understands it earns it. She who doesn't pays for it. This is Allegra Moet Brantley and you're listening to the Coffee and Coin podcast where women talk wealth. I'm the founder and CEO of Factora, a company on a mission to lead 1 million women to 1 million in net worth. Because when women have more money, we'll have more power to be the change we want to see in the world. If you're ready to hear real women share their real numbers and investment journeys and have a sneaky feeling you should be doing a little more with your money, you are in the right place. Just sit back, relax and turn me
up. All opinions expressed by Team Factora and podcast guests are solely their own and do not necessarily reflect the opinions of Factora Incorporated. This podcast is for informational purposes only and should not be used as the basis for investment decisions. Team Factora. And podcast guests may maintain positions in the securities or investments discussed in this podcast.
Welcome back to another episode of Coffee and coin. Today we are going to be talking about the power of compound returns. So Einstein had a lot of great quotes, but one that isn't talked about enough is this one. Compound interest is the eighth wonder of the world. She who understands it earns it she who doesn't pays for it. He said he but I switched it to shave for y'all. So today, we're really focusing on the power of compound returns. And this is one tiny concept from the multitudes that we cover in session two of the wall circle, which is all about investing in the stock market and understanding the markets fundamentals. Because the more you understand, the less scary it becomes. So we all know that saving adds to our money supply. Living below your means contributing to a high yield savings account is a great place to start building your net worth. But remember, saving is just the gateway to investing. You don't want to be saving just to save you want to be saving in order to invest because investing compounds your money, it turns those additions into multiple occasions. This means the money you contribute to an investment account and the returns that money makes you in the account exponentially increase your money supply. And that is why Albert Einstein referred to compound interest as the eighth wonder of the world. And I couldn't agree with him more. So when your money is continuously earning money, it's working for you generating something called passive income. Oh, that sweet, sweet, passive income that we love at Factora. When this is happening, you are building wealth while you are sleeping, eating out of the office having all the fun. Isn't earning investment returns for minimal effort a lot easier than scrimping to save up your hard earned dollars each month. rhetorical question? I know that it is. So let me talk to you about the power of compound returns. If you have $100,000 today, and keep it saved in cash in 10 years, you'll still have $100,000. But it's actually going to be worth much less due to inflation and the rising cost of goods, which we're really seeing nowadays. If you were to invest that $100,000 in the stock market and said and assume an average annual rate of return of 8%. After 10 years, you'd have over doubled the initial investment without contributing anything additional. That's compounding. And that's why it's so powerful. So people often mistake that cash is the safe place to keep your money, especially during a volatile market like recessions, market crashes, setbacks, pandemics. But sitting on the sidelines and not capturing investment returns is actually far more risky and dangerous over the long term. Because we only have so much time to build wealth and the best time To plant a tree was 20 years ago, but the next best time is today while we're still income earners, right. So too much cash on the sidelines slowly loses its purchasing power to inflation over the last century, the value of $100 decrease to just $3.48. Looking at that, the other way $100 Today was worth about $1,300 100 years ago, meaning it would have bought you way more, you would have been living the Lux life if you had $1,300 100 years ago. So even though your savings account number is going to stay the same, the value of that money is diminishing year over year. So beyond what you need to keep in cash for emergencies and near term goals. This is we want the this is why we want the rest of your money growing rather than shrinking over time, which means we want to invest it instead of just saved. So let me illustrate this a little further. Let's say you were to make an initial investment of $10,000 into an investment account, and then add contributions of 1k per month, over the next 30 years. By year 15, your investment returns start to exceed your principal, which is that initial investment amount of 10k, and the monthly contributions you've been making. So after 30 years, your returns are going to be 3x, the total amount you've contributed in cash. So after 30 years, and we're talking with an example 8% annual rate of return that's typically used for long time horizons in the stock market, the principal amount you contributed would have been 370k. That's the 10k initial deposit plus those annual contributions of 12k for 30 years, but your investment returns would equal $1.15 million, giving you a total of 1.5 2 million in your account. It is why we simply cannot afford to miss out on compounding returns. And too often, too many women are keeping too much money in cash on the sidelines instead of figuring this stuff out. And getting to take advantage of this eighth wonder of the world. So anyone can use this very simple and diligent strategy over time. It's just learning how to get off the sidelines and buy assets that are going to appreciate over time and throw off passive income, aka investments that are going to earn you compounding returns. So flashy new cars, gadgets, clothes, I get it all that stuff is fun in the moment, but they don't buy you freedom, because they don't offer you a return on your dollars. There's no returns from buying a shirt. I used to walk into stores, my team laughs at me about the story, I used to walk into stores and dream about wanting to afford the $650 jacket. Now I walk into stores and I look at that price tag. And I think this jacket can't afford me because I can buy a real pretty version of you for a reasonable price and put the difference into my investment portfolio. So switching it up from how long it would take to double one lump sum without adding any additional contributions. Let's talk about what it would take to become a millionaire by 65 depending on what age you're starting at. So keep in mind, you're we're assuming that you're starting with $0 in investments and earning that 8% annual average rate of return. If you start at age 25, you would only need to contribute $309 a month to make it to millionaire by 65. But if you didn't get started until 10 years later, at age 35 You need to increase those monthly contributions from 3092706. And if you're just getting started at age 45, you'd need to increase them even higher all the way up to $1,747 a month. So the moral of the story is wherever you're at start now because time in the Market Plus company pounding interest are your two best friends as an investor, we need time on our side. And we need as much money in investments as we can safely, reasonably do, while considering our other goals and timelines, which we help you map out in a wealth circle. So, if you enjoyed learning about what I just spoke of, make sure to apply to the wall circle where we deep dive a variety of investment topics and principles like this one. So you are confident about getting your stock market portfolio, up to speed and in line with your goals bought into real estate and business investing to if those suit your skill sets, interests and goals. So I always love to say that no one is an expert in anything but being ourselves. So that makes us prime for being incredible wealth builders, for ourselves because we're an expert and being asked, we know what we want, we know when we want it. And when we can apply all the investment fundamentals to those goals. magic can happen, and financial freedom becomes something attainable in our hopefully near future. It can get closer and closer the more time, effort, attention and dollars we put into our wealth building practices. So short episode, but I'll see you in the next one. Hope you enjoyed it.
If you enjoyed this episode, come join us in a wealth circle. It's our live online 12 week course and community where we teach you how to create a personalized financial plan alongside hundreds of other women building wealth. It will change your life and your money for good. You can apply at factorawealth.com forward slash wealth circle. That's factorawealth.com forward slash wealth circle. See you in the next episode.