Making the most out of compound interest
In my latest YouTube video I spend 5 minutes describing how to make use of double compound interest. It’s basically like regular compound interest, but you end up with twice as much money in the end. 🙂
You can watch the video by clicking here or take a look below.
If you would like to listen to the audio only, you can download the mp3 here or use the media player below.
How double compound interest works
The general idea for the double compound interest is to take on an investment loan. Buy the asset that you were going to add to your portfolio anyway, but you can buy more of it now with the help of other people’s money. As you pay down the debt, the balance you owe will decrease faster and faster, creating wealth through debt reduction.
Net worth = assets – liabilities
If you don’t have liabilities, only your assets can compound to build wealth. That’s only 1x compound interest.
When you also have liabilities and pay them off over time, your net worth can grow at 2x compound interest. 🙂
By applying a life-cycle investing strategy when you are young, you can expect to retire almost 6 years earlier or extend your standard of living during retirement by 27 years compared to conventional investors. By employing leverage to gain more exposure to stocks when young, individuals can achieve better diversification across time.
Details including charts and guides are in the video. 🙂
The life-cycle investing research paper can be found here.
Random Useless Fact:
You can’t tickle yourself.
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[…] store of value. So you can generate returns from both your property and your debt, which creates a double compound growth effect. […]