DM 78 - Watch Your Money Grow - The Magic of Compound Interest
- noemedagatan
- Jan 15, 2024
- 2 min read
The magic of compound interest – what the heck does that mean? Hey, it's Jon from Financial MD, welcome to today's Didactic Minute.
Now if you've done any reading on personal finances or investing, you've probably come across this phrase – compound interest – and how amazing and wonderful it is for your financial goals. Now this is true, but what does it actually mean and how does it apply to you? Let me explain with a story.
Let's say you had a choice between taking $3 million, and a penny every day but doubling it every day. So, someone gives you $3 million, or one penny the first day, then two the next day, then four, then eight, and 16, etcetera, etcetera, and so on, for just a month. Which one would you rather take – the penny doubling every day or $3 million? Now obviously our gut is to take the 3 million but the magic of compound interest will tell you that penny is actually going to turn into $5.37 million over the course of a month. Pretty crazy, right? Well, obviously, we see things double and things can add up pretty quick. There are not really any investments I can think of right now that are definitely going to be guaranteed to double so if you get that deal, take it. But it's just simply explaining the concept of if you let something go into some account – some investment – that's going to grow every year, every month, every day – whatever the case might be – over enough time, especially with adding money to this account, compound interest is the one reliable factor – the predictable piece that's going to get you to your financial goals. But it does require time and patience. And that's the thing – and I would say that's the thing that we have less of today is patience. We want it now. We see people that seem to get wealthy overnight; we see people day trading – any of those things. But that magic of the compound effect – compound interest – in your finances and, frankly, the compound effect in any area of your life. You pick one thing you do a little bit every day, you're going to become an expert at that thing. You put a little bit of money – 10 bucks, 50 bucks, 100 bucks – a month into a Roth IRA, you're going to see that thing grow over time. And so trust the magic of compound interest. It is a thing. If you disagree with me, if you want to put some comments in there, please do that below. Get some interaction. I want to talk to you guys and see – what do you think? Am I explaining this well? Do we need to go more in-depth on this? Do you want to see more on this? Other than that, please follow, like, and subscribe to this. Get this message out to as many young physicians as we can, and remember to check out the Financial MD Show, our bi-weekly podcast.
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