Einstein Called it the Most Powerful Force in the Universe
Einstein called it the most powerful force in the universe and the eighth wonder of the world.
Warren Buffett said it was the secret to wealth.
It’s also why vampires are stupid rich.
I’m talking about compound interest. Perhaps you’d like to learn more about this powerful force and the secret to true wealth. Well, I’ll tell you.
First of all, there are two basic ways to calculate interest: simple and compound. Simple interest is when you get X percent every year. That’s like getting a dividend and spending it. Or perhaps an annuity.
Compound interest, on the other hand, is getting paid to get paid. It is like getting a dividend and reinvesting it. Then you make money on your money...
Simple Interest vs. Compound Interest
Say your Uncle Oscar left you $10,000 in an account at 8% simple interest. This equates to $800 added to your account per year. Next year you get another $800, and so on, ad infinitum. After 30 years, this adds up to $34,000. Not bad — you could redo your kitchen and maybe a bathroom.
But if you reinvested that $800 every year, you would get interest on your interest.
In the first year, you would get $800, but you put that back in the pot. In the second year, you would get interest on $10,800, not just your original $10,000, which equals $864.
The value would balloon to more than $100,626.57 after 30 years, and more than 90% of your money would have come from interest payments.
But let's say you want more... If you added $10,000 every year for 30 years, you would have $1,324,085.25. In 35 years, you would have $2,008,874.92.
If you started at 20, you could retire at 55. Not bad at all...
This is why vampires are wealthy — because their time horizon is long. If you invested $10,000 every year for 100 years at 8%, you would have $318,830,382.17. In 200 years, you would have $7,308,812,373,199.38.
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Now take that to the stock market. If you buy stocks that pay dividends and reinvest the money, you will make far more than by buying index ETFs or growth stocks.
Just check out this chart:
We are the blue line. Looks good, right?
Well, I’ve found a company that will do better than 8% a year. In fact, it will pay you 10.58% a year. And it’s been paying out these hefty dividends since 2000. Not only that, but it has a P/E of 7.57 and a quarterly earnings growth rate of 37.60%.
How is this severely undervalued company growing fast and paying a huge dividend in an overblown economy? There has to be a catch, right? Well, yes, there is a catch... but it's not what you think. It's better, much better.
All the best,
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.
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