Right Field Finance

Don't be left on the bench with your personal finances!

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The Power of Compound Interest

The power of compound interest is something that needs to be understood by everyone. Compound interest continually builds on itself and remarkable results can be achieved. 

In baseball, there is the saying that you should strive to get 1% better everyday. Using compound interest over the course of a year, you could be over 37x better at the end of a year. This monumental jump is the result of putting in just a little more effort in each and every day. 

While compound interest can be applied in a variety of contexts, it's most often used financially for the growth of wealth over time. 

To illustrate just how powerful compound interest is, take for example investing in a Roth IRA at the current maximum contribution of $7,000 per year. After 40 years at an average 10% return, you could expect to have over $3 million while only contributing under $300,000. This doesn't even account for the likelihood of the allowable contribution to increase in the future which could make this amount even more.

This is just one example of how the power of compound interest can be taken advantage of and there are many other opportunities to grow wealth over a lifetime, including 401(k) plans, other investment accounts, and certain kinds of insurance products.