Entrepreneur, investor, and founder & CEO @VirtuseExchange
Arguably, one of the best options to make a fortune is to start and grow your own business.
There’s just one problem. The blood, sweat, and tears that go into that are enough to scare most people away.
Fortunately, if you trust the math, there is another, simple and pain-free, option.
It’s called compound interest.
When Albert Einstein was once asked what was mankind's greatest invention, he replied: “Compound interest.”
He also called compound interest the most powerful force in the universe or the “8th Wonder of the World.”
Compound interest can be thought of as “interest on interest.” It simply means saving early and letting investments compound over a longer period of time.
In my view, it’s as close to financial magic as you can get without breaking your neck running a company.
Besides, with this strategy, you are almost certain to put $1 million in your pocket. All you need to do is persevere and not sell prematurely.
Let me walk you through.
Assume you put $300 per month into an account that earns 10% interest every year. In 40 years your $144,000 will be worth $1.6 million dollars. Yes, that’s million, with six zeros. Be sure to visit the Compound Interest Calculator by Investor.gov to play around with the numbers for yourself.
Amazing isn't it? It gets better.
You can drastically cut down on the 40-year timeline.
All you need to do and invest in Bitcoin instead of the S&P 500 index.
The Compound Interest Calculator tells us that your $300 per month investment, with a 60 percent expected return will swell to more than $1.7 million dollars in only 12-years.
But are these expected returns realistic?
Based on historical data they sure are. Take the S&P 500 index, for example. Since 1976 it has on averager returned 10.72 percent per year.
And Bitcoin? The average annual return has been 363 percent and it’s one of the best-performing assets in a decade. But for the purpose of this calculation, I assumed a modest 60 percent return.
But wait, there is more….
Nobody knows when a market goes up, down, sideways or in circles. Anyone who tells you they do is either lying, foolish, or both.
This passive form of investing means you don’t try to buy or sell based on your research. Also, you never panic when the market crashes, but you’ll only lock in your temporary losses.
No matter from which angle you look at the compounding interest, it is as close to magic as you can get.
Do you see how huge this is?
We all know that running a business isn’t for everyone. It’s a steep uphill to climb. To me, there was no other option. I couldn’t imagine doing anything else.
But if I’d known in my 20s what I know now, I’d be investing in the magic of compounding along with each new company I started.
I can’t think of a more efficient strategy to become a millionaire.