Posted on July 20, 2009 - by Createwealth8888

The Best Secret in Investment and Trading – Compound Interest

Photo by Mirko Macari

Albert Einstein’ once said that Compound Interest was the greatest mathematical discovery of all time“, and some said this is the 8th Wonder in the World of Investing & Trading.

Before you make any investment or buy a stock, you have to look at the expected “high” rate of return on capital (ROC), but it is the compounding of the interest (or ROC) on that principal or capital which creates the biggest returns over time.

The compounding of profits, or dividends, or interest or ROC applies in all financial markets, so if you are a short term stock market trader, property investor or other short or long asset holder, you may find the magic of compounding interest very interesting.

The rule of 72 and long term returns

You might not have learnt this at school, but Einstein’s rule of 72 is one of most magical and simple formulas around. What this says is that to work out how long it takes to double the value of an investment, you simple divide the return into 72.

To estimate how long it would take to double you money on an investment just divide 72 by the percentage rate you are earning on your investment; and that’s it.

For example, if you have a savings account with $500 deposited in it. The rate of interest is 4% per year. So the doubling point, the length of time it will take you to double your $500 to become $1,000 is: Read more…

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