The Power of Compound Interest

The reason you invest is to preserve the purchasing power of your money. Unlike your bank savings or checking account, with investing, your money CAN outpace inflation.

And I’m not talking about investing in gold, in silver, in bitcoin, in baseball cards. We’re talking about investing in the most proven investment vehicle over decades and decades of history.

We’re talking about the #1 investing method that has made more millionaires than any other method over the past 100 years and beyond.

If you haven’t guessed it already, we’re talking about the stock market.

And I like to use a simple analogy to really bring the power of the stock market into perspective. Now you may think it’s a bit nerdy, but I like to think of the stock market as the kryptonite to inflation.

You remember Superman, his only weakness was kryptonite. And much like superman, inflation seems invincible to many things. The cost of food, the cost of rent, the cost of living, everything goes up, and our purchasing power continues to go down.

But there is one thing invincible to inflation. There is one kryptonite… and that is investing in the stock market.

Remember the average inflation rate of the U.S. dollar?

Remember the average interest rate on your savings/checking account?

Keeping your money in a savings account pretty much makes it impossible to outpace inflation, let alone, keep up with it. At best, every dollar you are saving is losing 2% of it’s purchasing power each year.

So, what if there was an alternative place to keep your money where you could not only keep up with inflation, but you could actually outpace it?

This is the Kryptonite

Now, you may be wondering, how much can you actually expect to make investing in the stock market? Well to answer this, it’s important we take a quick look at historical stock market returns:

One of the most widely used indexes of the US stock market is the S&P 500 index.

The S&P 500 is a stock market index that measures the stock performance of 500 of the largest companies listed on stock exchanges in the United States.

We’re talking about the biggest US companies, we’re talking about Amazon, Google, Microsoft, Walmart, McDonalds, Apple, Netflix, Johnson & Johnson.

As one of the most commonly followed equity indices, many consider the S&P 500 to be one of the best representations of the entire U.S. stock market’s performance.

According to MacroTrends.net, a research platform with decades of historical data, the S&P 500 has averaged an 8 to 10% rate of return every year since its inception in 1926.

So we’re looking at a proven investment vehicle with historical data spanning nearly a century. This is why investing in the stock market has created more wealth for more people than any other investment method over the past 100 years. Nothing else has the track record for creating wealth that the stock market has.

Keep in mind though, this is the average annual rate of return of the stock market over a 90+ year period.

Some years your investments in the stock market will earn more than 10%, some years they will earn less than 10%, and some years you will even lose money. But the important takeaway is that on average, the stock market has historically given you an annual 8 to  10% rate of return on your investments.

And yes, that even takes into account all the down years. So even through any stock market dips and stock market crashes, if you’re willing to start and stay the course, history has shown that you will still come out ahead over the long run. How’s that for outpacing inflation?

But what exactly does a 10% annual rate of return mean in practical terms? Essentially, a 10% annual rate of return means that for every dollar you invest today, it’s value will double approximately every 7 years. And every dollar you continue to invest going forward will also double approximately every 7 years.

So, when you start and continue to invest month after month, year after year, decade after decade, you can begin to see how it can really create this powerful snowball effect to start growing your money.

But, what if I told you it gets even better? What if I told you that not only can you make money through investing in the stock market, but that the very money you invest can actually begin to work for you?

Yes, I’m talking about your hard-earned money working hard for you, to earn you even more money. If this sounds unreal, it’s actually not. This is a powerful principle called compound interest, and it is the secret to accelerating the rate at which you grow your wealth.

Now, in a later module of the course, we’ll be going over the power of compound interest and how to use it to your advantage so you can start growing your money through the stock market.

But, in the next article we’re going to break down the #1 reason why savers... are actually winners. If that sounds contradicting, don’t worry, it’ll make perfect sense in the next guide.