Legend has it that Albert Einstein once said: “compound interest is the eighth wonder of the world, the one who understands it, earns it; the one who doesn't, pays it”. But what is this concept that even attracted the attention of one of the best physicists in history?
And most importantly, why is it so important to increase our savings substantially?
- What is compound interest
Compound interest is a crucial concept to understand, since it can helping investors to significantly increase their long-term returns.
Compound interest is an investment technique in which the interest generated in one period is added to the principal capital, and in the following period the interest on the new total capital (principal + accrued interest) is calculated. That is, the interest generated in one period becomes part of the capital and generates interest in the next period.
El Time factor is essential for compound interest to work.
On the one hand, we have to make sure that the sooner we start investing dividends, the more profit we will obtain in the long term. On the other hand, the longer our investment lasts, the greater the interest generated, which in turn will generate higher interest in the following period.
This is why compound interest is said to be the “interest on interest effect”.
The higher the capitalization frequency, the greater the interest generated. In other words, if interest is capitalized daily, more interest will be generated than if it is capitalized monthly, which is known as the “capitalization effect”.
In short, compound interest generates interest on interests and its effectiveness increases with time and the frequency of capitalization. It is important, in the financial world, because it allows for exponential growth of invested capital over time, with which much higher returns can be obtained than with a simple interest rate.
In the following link we provide you with more information about The Power of Compound Interest.
- How much you could overearn by reinvesting dividends
To calculate the compound interest return on an investment, you must use the following formula:
A = P (1 + r/n) ^ (nt)
Where:
A = the future value of the investment.
P = the principal amount of the investment (the initial deposit).
r = the annual interest rate (expressed in decimals).
n = the number of times interest is capitalized per year.
t = the number of years during which the money is invested.
For example, if you invested $10,000 at an annual interest rate of 5%, compounded monthly for 10 years, the future value of the investment would be
A = $10,000 (1 + 0.05/12) ^ (12*10) = $16,470.09
This means that you will have $16,470,09 after 10 years if you have invested $10,000 at a compound interest of 5% monthly.
And do I have to do this calculation to know the return on my investment?
The answer is no.
At Reental we have prepared a spreadsheet with which you can easily and quickly see the return on your investment.
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In the meantime, we leave you with a very clear picture of what the power of compound interest means.
Let's see an example of how to convert your €30,000 saved into €45,806 by investing in Reental
Our average of exploitation For the property it is of a 10%.
-If you invested €30,000 in one of our properties now, annually You would receive about 2,943€ in dividends Yearly.
-Thus, in 4 years, your investment would generate an estimated profit of 11,772€ + the capital gain generated with the sale of the property being 3.5% giving a balance of 1,461€.
Now here's the magic of compound interest. If you reinvest, an extra 2,573€ (total 4 years) will be added to the return. The amount is similar to earning one more year of operation, completely free of charge. So we went from an approximate percentage of 10 to 12 just by reinvesting our passive interests.
- How to Harness the Power of Compound Interest with Reental
Here the steps are very simple, which we will leave described below:
- Log in to the Reental DAAPs with our user.
- Select our wallet where we receive the dividends every month.
- Select the property that is available in the portfolio to invest and click on “buy tokens”.
- Choose the “Reinvest” window.
- There we can select the amount we want to invest. Remember that the minimum is 10 USDT.
- As the last step, we click on “Buy” and that's it! Remember to have BNB in order to do so.
We leave you the video tutorial that will serve as a guide to do it without problems.
In order not to miss any of the opportunities we present, we recommend that you join our group of Discord or Telegram To get to know others Reentels and the whole team. Of course we invite you to take a look at our articles on the blog to continue informing you.
Welcome to the new way of doing finance, welcome to Reental.
