From Dr. David Eifrig in Retirement Millionaire:
The secret is not hard to grasp. You just have to understand a few simple principles. But as you might imagine, it does take some time and a little effort on your part.
And it starts with one simple idea... compound returns.
If you're not sure what compound returns are, don't worry. It's easy to understand and a powerful tool when you put it to work.
Simply stated, compound returns are money you make off the money you make. And the more money you make, the more money your money makes off the money your money makes. I hope you're smiling, but here's what happens...
Imagine you're 40 years old and subscribe to my letter year after year, making consistent 18% annual returns. What will happen to your portfolio by the time you retire at the age of 67? If you start investing with $10,000 at the end of the first year, you'll have about $11,800 (not including taxes or fees). You made $1,800 on your initial investment.
But in your second year... you're not starting over at $10,000. The $1,800 you earned in the first year will be making money for you, too. So assuming gains of 18%, you'll have earned another $1,800 on your original capital plus another $324 on the profits from the previous year's $1,800.
You're not just multiplying $1,800 times 25 years. (That only gives you $45,000.) Where does the other $903,000 come from? That's the secret. The money starts making money on top of itself - your money is compounding.
The money you make in the first year, in this case $1,800, starts making money in the second year, third year, and so on... It continues this way for every stream of money you compound. So the $1,800 you make in your second year also makes $324 in the third.
But there's more. The $324 you make in the second year generated by your first $1,800 now makes $58.32 on itself in the third year... by the end of your third year you now have $16,430.
And the money just keeps building.
By age 68 (28 years of compounding), it totals nearly $1 million. And if you waited another couple years, until age 70, the compounding effect starts to explode. At that point, you have almost $1.5 million.
Note that compounding is different from a bond that pays 18% a year on a $10,000 investment. By the maturity of the bond (say, 30 years), you'd have received $54,000 (30 years of $1,800 interest payments) plus your $10,000 original principal... for a total of $64,000.
That's why this secret is so powerful. By plowing your earnings back into your portfolio, you can get your money working for itself and amass a fortune from your initial investments.
Crux Note: In his latest issue of Retirement Millionaire, Doc Eifrig reveals two ways to "supercharge" your returns from compounding, and cut years off the time needed to buld life-changing wealth. To learn more about Retirement Millionaire - and how you can access the latest issue - click here.
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