Power of Compound interest: Investing in the Stock market for Long-Term Success

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein

When it comes to investing, most people think about the short-term. They want to see a quick return on their investment so they can move on to the next one. However, if you’re looking for long-term success in the stockmarket, you need to think about compound interest. In this blog post, we will discuss what compounding is and how you can use it to your advantage when investing in stocks. We’ll also look at some real-world examples of how compounding can help you achieve your financial goals!

What is compound Interest?

Compounding is the process of earning interest on your investment, and then reinvesting that interest so that you earn even more interest on it. In other words, it’s like earning interest on your interest! This can have a snowball effect over time, and if you’re patient enough, it can lead to some amazing results.

For example, let’s say you invest $100 in a stock that pays an annual dividend of $12. That’s a 12% return on your investment, which is pretty good. But if you reinvest that $12 dividend back into the stock, then next year you’ll earn interest on the $112 that you have invested. And the year after that, you’ll earn interest on the $124. And so on.

Time and compound Interest

Over time, the power of compounding can help you achieve some incredible results. For example, if you reinvest your dividends and earn an annual return of 12%, then after 20 years you’ll have almost doubled your money! And if you’re patient enough to wait 30 years, you could potentially turn that $100 investment into over $600! now imagine what that would look like if you invested $100 per month in that same stock at 12%, you would have amassed >$292,500 over that same period 

Dividend Reinvestment Plan

The DRP, or Dividend Reinvestment Plan, is a great way to take advantage of compound interest in the Australian stock market. With this plan, you can automatically reinvest your dividends back into the stock (often at a discount), which can help you boost your returns over time. This is great for long-term investors who don’t require their dividends in cash

Of course, there’s no guarantee that your investments will always perform this well. But if you’re looking for long-term success in the stock market, then compound interest is something you should be taking advantage of.

To explore the power of compound interest for yourself, try the investment calculator on the JM Investments website Here

So what are you waiting for? Start reinvesting your dividends today and let the power of compounding work its magic!