The document discusses the concept of compound interest and its power over long periods of time. Compound interest is the process of reinvesting earnings to generate even greater returns. For example, an initial $5,000 investment earning 4% annual interest would grow to $5,200 after 1 year, and $5,408 after 2 years. Letting interest earnings reinvest and compound over decades, such as a $10,000 investment earning 5% annual interest over 50 years, would grow to over $617,000. The longer an amount has to compound, the more dramatic the impact, illustrated by $360,000 after 40 years versus over $617,000 after 50 years on the same terms. Mastering compound

1. Investing
C O M P O U N D I N G
A B E G I N N E R ' S G U I D E T O

2. "Compound Interest"
Compounding, also known as
compound interest, is the process of
taking what you earn from an
investment and reinvesting that
money back into the investment,
earning you exponentially more
money as time passes.

3. For
Example...
For example, if you invest $5,000 and
have an interest rate of 4% each year,
you will end up with $5,200 ($5,000 x
1.04) at end of year one.

4. Instead of taking that $200 at the end
of the year and using it for something
else, you would reinvest that $200 with
the addition of your original investment,
or principal, being $5,000.
Reinvest $200

5. So, by end of year two, you would end up
with $5,408 ($5,200 x 1.04). See how this can
grow exponentially? Compounding interest is
a gold mine for those who invest in it.

6. Results
As you can see, the interest you
earned the first year was $200. The
interest you earned the second year
was $208. You didn’t have to do
anything additional to earn that
extra $8.00.
By the end of the next year, you
would result in $5,624.32, leaving
you with an earning of $216.32. That
$16.32 more than the interest you
earned in year one and $8.32 more
than you earned in year two.

7. Another
Example
The principal is the initial amount of
money you choose to invest. Let’s say
you choose to invest $10,000 now and
you plan to reap the rewards 50 years
from now. Each month, let’s say you
choose to add $200 to the principal
as you earn more money, and your
annual compound interest rate is 5%.
Your investment would be worth
$617,109.19 at the end of 50 years!

8. Visit https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator for a compound
interest calculator.

9. N O W L E T ’ S S A Y Y O U I N V E S T E D T H E S A M E
A M O U N T O F M O N E Y W I T H T H E S A M E ,
A N N U A L C O M P O U N D I N T E R E S T R A T E B U T
O N L Y I N V E S T E D I T F O R F O R T Y Y E A R S .
Y O U W O U L D O N L Y H A V E $ 3 6 0 , 3 1 9 . 3 5 B Y
T H E E N D O F T H E T E R M ! T H A T I S
$ 2 5 6 , 7 8 9 . 8 4 L E S S !

11. As you can see, the concept of
compounding makes a massive difference
in the amount of money you earn on an
investment. In taking the first steps towards
investing, it is important to not only notice
the compound interest rate, but also to
decide on a lengthy amount of time to
allow your principal and interest to
compound.

12. I N T E R E S T E D I N L E A R N I N G M O R E A B O U T
I N V E S T I N G ? C O M E B A C K I N A F E W W E E K S
T O S E E M O R E O F “ A B E G I N N E R ’ S G U I D E
T O I N V E S T I N G . ” I N T H E M E A N T I M E ,
F O L L O W M E O N T W I T T E R F O R W E A L T H
M A N A G E M E N T U P D A T E S , N E W S , A N D
T R E N D S @ E R I C A H I L L _ K W !

13. Thank You
F O R L I S T E N I N G
E R I C A H I L L . N E T