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✨ The Magic Of Compounding ✨
Unbroken Investing
May 18, 2024 • Estimated Reading Time: 5 minutes
Main Article Preview (Unbroken Insights): "The Magic Of Compounding”
Newsletter Content
Here’s How The Market Has Been Performing*
Name | Current Value | 1 Week Return | 1 Month Return | 1 Year Return |
|---|---|---|---|---|
DJIA | $40,003.59 | 1.24% | 5.96% | 19.69% |
S&P 500 | $5303.27 | 1.54% | 5.59% | 27.52% |
NASDAQ | $16,685.97 | 2.11% | 6.39% | 33.48% |
Bitcoin | $66877.47 | 10.47% | 9.14% | 144.08% |
Ethereum | $3089.91 | 6.78% | 3.52% | 69.60% |
*As of Close of Current Market Week
Our Favorite Unbroken Investments
Name | 1 Month Return | Monthly Average Return |
|---|---|---|
Fund 1 | 3.04% | 12.62% |
Fund 2 | 12.37% | 14.54% |
Fund 3 | 16.04% | 10.51% |
Fund 4 | 10.12% | 8.20% |
Access these investments by joining the Unbroken Investing community. |
Unbroken Insights
The Magic Of Compounding
You may have heard of the Rule of 72. It is not exact, but basically, you can divide 72 by the interest rate to determine how many years it takes to double your money. For example:
At 6% interest, your money doubles every twelve years.
At 8% interest, your money doubles every nine years.
At 12% interest, your money doubles every six years.
This is where we transition into the exciting new part. Most people are stuck earning low returns, such as 3% to 6%. They see their money double in 24 years or 12 years. The stock market averages less than 10% per year, which means your money doubles every seven years or so… if you are lucky.
But there are many opportunities to earn much higher returns. Let’s look at a 12-year time horizon:
If you earn 6%, your money will double in 12 years (72/6=12). An investment of $10,000 becomes $20,000.
If you earn 12% per year, your money will double in six years (72/12=6)… and DOUBLES AGAIN in the next six years. That means your $10,000 becomes $20,000 in year six and $40,000 in year 12.
What if you could earn 24% per year? Well… that would double in 3 years and again in year 6 and again in year 9 and again in year 12. That same $10,000 becomes $20,000 in year 3, $40,000 in year 6, $80,000 in year 9, and $160,000 in year 12. Now we’re talking!!
As of right now, we have more than 15 projects that are earning 3% per month or more. That is how you use compounding to your advantage. Does that mean that you should put everything into investments that have higher returns? No, because they do have higher risk. However, if you allocate a small percentage of your portfolio to high-return assets, it can create life-changing wealth… thanks to compounding.
Check out this example…
Let’s say your portfolio is $100,000. Consider allocating 20% of that to investments with higher return potential. Where could you be in year 12?
$160,000 from the $80,000 you kept in traditional investments, growing at 6% a year.
$350,000 from a $5,000 investment that grew at 3% a month (it doubles every 2 years).
$1,200,000 from a $5,000 investment that grew at 4% a month (doubles every 18 months).
$0 from a $5,000 investment that did not go well.
$0 from a $5,000 investment that did not go well.
$1,710,000 = value of portfolio in 12 years with taking a little risk.
$200,000 = value of portfolio in 12 years taking almost no risk (earning 6% average per year).
$160,000 = value of portfolio in 12 years if all higher return investments fail.
Here is the point… If you diversify into a few higher return (but higher risk) opportunities, the worst-case scenario (losing all of it) does not change your overall portfolio that much ($200K vs. $160K). If you diversify and only half the higher risk opportunities work, the difference is $1.7M vs $200K. If you diversify and all the higher risk opportunities work, you will not need to wait 12 years!
That is the magic of compounding that most people do not know. Consider using compounding to your advantage on a few higher risk and higher return opportunities. Do not just take risks blindly… perform due diligence to keep your risk as low as possible. Exploring opportunities outside of traditional investing can make an amazing difference in your portfolio and in your life!
You can learn more about some of our member’s favorite higher return investments at unbrokeninvesting.com.