30/05/2024
You shouldn't take profit from your investment and settle for less!
All of us save money for various reasons. However, not everyone invests their money long enough—or lives long enough—to witness the magic of compounding.
If you had invested in a stock/fund, made a profit, and then sold it, did you reinvest the profit to generate future profits? By spending the profit, you deny yourself from the opportunity to benefit from compounding returns.
You must allow your investments the TIME they need to grow exponentially.
A common mistake among investors is to take profits, spend them, and then feel satisfied with the return.
Let's examine the consequences of this behavior.
If you are an investor who can consistently earn a 10% profit each year:
Year Invested Amount Profit Spent
1 $10,000 $1,000
2 $10,000 $1,000
... ... ...
30 $10,000 $1,000
After 30 years, you would still have your initial $10,000, and each year you would enjoy spending the $1,000 profit. Sounds good?
Now, let's consider an alternative approach...
Year Invested Amount Reinvested Profit
1 $10,000 $1,000
2 $11,000 $1,100
3 $12,100 $1,210
4 $13,310 $1,331
5 $14,641 $1,461.10
6 $16,105.10 $1,610.51
... ... ...
30 $158,630.90 $15,863.09
After 30 years, your account would have $174,494. You've built up substantial savings from your initial $10,000 without adding any additional funds.
Do you see why the first behavior can be damaging to your financial growth?
When you start saving early, you give your money the TIME it needs to grow exponentially before you need it.
That's why it's crucial to start saving for retirement as soon as possible. Besides the rate of return, TIME is the most critical factor in determining the size of your retirement nest egg.
