“I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.” ― Warren Buffett
Coffee Can Investment Strategy involves buying and holding a portfolio of high-quality companies for the long-term, typically ten years or more. The strategy is based on the premise that investing in the right high-quality companies will result in significant capital appreciation over time.
The concept was popularized in India by Saurabh Mukherjea in his book “ Coffee Can Investing: The Low-Risk Route to Stupendous Wealth”.
In this strategy, investors pick a group of high-quality companies with a proven track record of generating consistent profits, revenue growth and return on invested capital (ROIC). The chosen equity stocks are held for an extended period irrespective of market conditions or short term volatility.
This strategy allows investors to avoid the temptation of selling their equity holdings during short-term market volatility. It protect the investor from their own bad decision and investing behavior.
You only need one of the Coffee Can companies to hit and become a 100 bagger.
But, how to look at a small cap company and know that they have a runway.
Look at the ownership and use your imagination to determine if a company can have organic growth and expand into other markets.
At the end of 10 years, you will have some stocks that have not grown, others that have lost value, and two to four outperformers. Those outperformers will provide a high return on investment.
It refers to companies that have generated a Return on Invested Capital (ROIC) of over 15% every year with the Coffee Can Investing approach. This makes the approach a low-risk route to making stupendous wealth.
Coffee Can Portfolio is mostly concerned with stock quality. As an investor, you must choose a quality stock, which signifies a fundamentally strong company. Here are some points to build a Coffee Can Portfolio.
The company should have been in existence for at least 10 years.
The revenue growth should be at least 10% year per year.
ROIC of at least 15% for 10 years
Market capitalization should be more than $500 million USD
The company should have good brand value.
The company should have a competitive edge.
Founder or CEO has skin in the game focused on driving value in the business. Executive management is strong.
For instance, let’s take an example of a toothpaste company. If a toothpaste company’s prices are increased, will people stop brushing? The answer is “NO.” Similarly, this strategy neither works on quantity nor growth; it works on quality investing.
Oprah Winfrey is known as one of the most successful individuals globally and her estimated net worth is almost $3 billion! To her degree of success and power, it took a lot of perseverance and wisdom.
Here are the ten rules of success according to Oprah Winfrey.
Rather than overwhelming yourself with the big picture, ask yourself what the next right move is. It’s easy to feel intimidated by everything on your plate, so instead of facing such an enormous proposition, take things one step at a time. Make the best next move you can, then make the next move, and then the next one, each time going as carefully and as thoughtfully as you can. Success isn’t one giant leap — it’s a series of baby steps. And, if you make one misstep, understand that your life and your career won’t be defined by that one mistake. You have more steps to take, and you’ll arrive at success eventually.
When you see an opportunity, take it. Success has been a result of grace and blessings, but there’s also been opportunity. The key to being successful is to recognize when opportunity is in front of you and seize it. “Luck is preparation meeting the moment of opportunity,”
Forgive yourself for your past mistakes. You’re not the person you were five, ten, twenty, or more years ago. A lot of wisdom just comes with age, so don’t beat yourself up for youthful transgressions. You didn’t know any better — but you know better now! Look at those past mistakes as teachable opportunities, learn as much as you can from them, and then move forward.
Never stop improving yourself. This means continually working on your personality, your skill set, and your network so that you are in the best possible position to make a difference. You always need to be improving if you want to get ahead. If people are saying that about you, take it as a compliment. You’re doing a lot, and others are noticing.
Go as hard as you can. Recognize and take responsibility that you have control only over your own performance. You can’t control what others are doing. All you can do is the best you know how, all the time. It’s like a race: you just run hard until you read the finish line, and all you can do is make yourself run more quickly, not make your competition run more slowly. That’s what brings you success: building yourself up, not looking behind you to see where your competition is.
Don’t just dream — believe. It’s OK to have big dreams for yourself; we all do. But if you’re going to be successful, you’ve got to do more than dream. You have to believe that the life you aspire to lead will one day be yours. Winfrey always knew that she would live a big, fulfilling life; she had that strong belief in what her future held. Do the same, and hold firmly to that belief, even in the most difficult of times, and you’re likely to get exactly where you want to be.
Remember that people are more alike than they are different. We’re all seeking the same thing, We all want to reach our fullest potential. Sure, we all go about that in different ways, because we all have different skills and different passions, but at the end of the day, we all just want to be true to ourselves and be, the “truest expression” of ourselves.
Find your purpose in life. If you’re going to be successful, you need to figure out why you’re here on Earth. Most entrepreneurs already feel like they know their purpose, but if you don’t, stop! Put everything on pause, take some time for genuine soul searching and self-reflection, and find your purpose. Find your why!
Keep yourself grounded and centered. It’s easy to get lost in your work, and it’s easy to let your ego inflate, but if you keep your focus, stay compassionate, and always seek to understand and connect with others, you’ll improve your chances of success substantially.
Try to remember that everything will be OK. If you’re aiming for big time success, you’ve got to be patient and take the long view. Yes, it’s natural to be a little scared, but never lose faith that everything will work out just fine.
Gratitude enables you to overcome your limiting beliefs.
Limiting thoughts and beliefs are false thoughts and beliefs that prevent you from pursuing your goals and desires. They can affect every aspect of your life from your wealth, health, relationships and emotional well-being. For example, if you believe you don’t deserve to be happy, you may never pursue your dreams or goals, and you will not be happy. Gratitude in all things
Gratitude enables you to overcome and replace you limiting thoughts and beliefs with positive and abundant thoughts and beliefs. Further, your attitude, mood, behavior and thoughts improve when you practice gratitude.
The three keys to gratitude include :
Emote – to feel emotionally grateful
Extend – reach out and connect socially
Exercise – practice until it’s instilled
Be grateful in all circumstances, no matter what, both in good times and dark times. Although, it is easier to be thankful during good times than during hard times. The trials and sufferings in your life are there to strengthen you. They’re there for you to learn and grow.
Dr. Robert Emmons, known as the “world’s leading scientific expert on gratitude”, andis a psychology profession from the University of California, Davis and also the founding editor-in-chief of the Journal of Positive Psychology, found that being more grateful can lead to increased levels of well-being and that being grateful towards a higher power may lead to increased physical health. Giving thanks to those you are in a relationship with (not only your family) will strengthen the relationship.
Studies found that persons practicing gratitude showed more optimism in life, reduced stress, depression, and anxiety levels. It is a continuous loop. The more you experience gratitude and say ‘thank you’ the more you will find in life to appreciate. When you choose gratitude over happiness even your self-control is stronger.
Research found that patients with heart failure showed reduced symptoms of heart failure and inflammation, improved sleep, and moods through keeping a gratitude journal.
Daily gratitude exercise
Reflect on three things your grateful for
Feel the gratitude in your body and
Extend the gratitude to others
When you practice gratitude, you change your thoughts and beliefs about yourself. You are happier and experience greater joy in life. And, when you change yourself, you change your perception of the world.
Be thankful for everything that God has given you. Apostle Paul declared, “I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want” (Philippians 4:12, NIV).
An attitude of gratitude and a spirit of thankfulness make all the difference. Thus, to change your life and your world, change your attitude and in all things, practice gratitude.
“The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit.” Jerome Powell, Chairman Federal Reserve
Wealth inequality, also known as the wealth gap, is a measure of the distribution of wealth—essentially the difference between the richest of the rich and the poorest of the poor, according to World Population Review. American household wealth—the value of assets subtracted by the liabilities and debts owed—may have increased largely in the form of equity, mutual funds, and similar investments, but not equally among all Americans.
@AnnePriceICCED: “Right after the Civil War, Black Americans held less than 1% of the nation's wealth. And today, they hold about 1 to 2% of the nation's wealth. So we haven't moved the needle…in fact, racial wealth inequality is actually getting wider.”https://t.co/vzWYd4GdKU
Wealth inequality is closely related to income inequality, which tracks the money people earn. However, wealth inequality includes not just income, but also the value of bank accounts, stocks and investments, homes, and personal possessions such as cars, jewelry, artwork, and other valuables. Wealth inequality is a major cause of unequal living standards in many communities.
The Federal Reserve’s statistics have confirmed the racial inequity gap related to income and wealth disparities. In its 2019 Survey of Consumer Finances, white families were reported to have had a median wealth level of $188,200, substantially larger than the median Black family’s wealth level of $24,100.
“These disparities still stand from a racism that’s systemic. It can be traced from employment to small businesses and wealth and still exist today in ways that still damage our country’s health,” Cleveland-based artist Chris Webb said.
The central bank is studying racial inequities in the U.S. economy. The Federal Reserve says it can only do so much to address earnings and wealth disparities, but feels an obligation to at least research the economic implications of uneven economic outcomes in the U.S.
While the assets of white households are equally split between real estate, equity and mutual fund shares, pensions, and other assets, the assets of other racial groups are less diversified. Almost two-thirds of Black wealth is composed of real estate and pensions, with 38% coming from pension assets alone. Similarly, 61% of Hispanic wealth and 56% of wealth from other races is composed of just these two asset types.
Additionally, according to data from the Census Bureau, 35% of white Americans are 55 and older, whereas only 24% of Black Americans are and only 16% of Hispanic Americans are. Hence, a part of the reason why wealth ownership is much lower among Black and Hispanic Americans may be due to the fact that they are relatively younger on average than white Americans. Black and Hispanic populations may be younger for a variety of reasons, including differences in life expectancy—Black Americans’ life expectancy is 3.5 years less than that of white Americans—as well as immigration trends.
The white population is more likely to be older, has earned more income over their lifetime and hold more wealth than Black and Hispanic populations.
.@NYUFASEcon professor Edward N. Wolff argues that in net terms, inflation has benefited the middle class and adversely affected the very rich, and also helped to limit both overall wealth inequality and racial and ethnic wealth gaps:https://t.co/yia3fHNvmO
In summary, the causes of wealth inequality in America remains deeply rooted and are systemic. And, the results of wealth inequality in America persists even today.
According to a recent survey, eight out of 10 of everyday millionaires invested in their employer’s 401(k) plan, and that simple step was a key to their wealth building. Not only that, but three out of four of those surveyed invested money in brokerage accounts outside of their company plans.
Moreover, they didn’t risk their money on single-stock investments or “an opportunity they couldn’t pass up.” In fact, no millionaire in the study said single-stock investing was a big factor in their financial success. Single stocks didn’t even make the top three list of factors for reaching their net worth.
The people in the study became millionaires by consistently saving over time. In fact, they worked, saved and invested for an average of 28 years before hitting the million-dollar mark, and most of them reached that milestone at age 49.
Dreams of trips to visit grandkids, travel adventures, and family celebrations at your paid-for home. That’s the kind of retirement many Americans dream about. You don’t have to earn six figures to turn this dream into a reality. But you do have to live and plan today with that goal in mind.
It’s important to get started building wealth no matter how old you are. Depending on your income and current financial circumstances, it might take some folks longer than others. But the fact is, you will get there if you do these five things over and over again.
Here are the five keys to building wealth:
1. Have a Written Plan for Your Money (aka a Budget)
No one “accidentally” wins at anything—and you are not the exception! If you want to build wealth, you have to plan for it. And that’s exactly what a budget is—it’s just a written plan for your money.
You have to sit down at the start of each month and give every dollar an assignment—and then stick to it! When our team completed The National Study of Millionaires, we found that 93% of millionaires said they stick to the budgets they create. Ninety-three percent! Getting on a budget is the foundation of any wealth-building plan.
2. Get Out (and Stay Out) of Debt
According to Dave Ramsey, the only “good debt” is paid-off debt. Your most powerful wealth-building tool is your income. And when you spend your whole life sending loan payments to banks and credit card companies, you end up with less money to save and invest for your future. It’s time to break the cycle!
Trying to save and invest while you’re still in debt is like running a marathon with your feet chained together. That’s dumb with a capital D! Get debt out of your life first. Then you can start thinking about building wealth.
3. Live on Less Than You Make
Proverbs 21:20 says that in the house of the wise are stores of choice food and oil, but a man devours all he has. Translation? Wealthy people don’t blow all their money on stupid stuff. The myth that millionaires live lavish lifestyles that include Ferraris in their garage and lobster dinners every night is just that—a foolish myth.
Here’s the truth: 94% of the millionaires we studied said they live on less than they make. The typical millionaire has never carried a credit card balance in their entire lives, spends $200 or less on restaurants each month, and still shops with coupons—even after reaching millionaire status!1 So ask yourself: Do you want to act rich or actually become rich? The choice is yours.
4. Save for Retirement
According to The National Study of Millionaires, 3 out of 4 millionaires (75%) said that regular, consistent investing over a long period of time is the reason for their success. They don’t get distracted by market swings or trendy stocks or get-rich-quick schemes—they actually save money and invest!
Being debt-free and having money in the bank to cover emergencies gives you the foundation you need to start saving for retirement. Once you get to that point, invest 15% of your gross income into retirement accounts like a 401(k) and Roth IRA. When you do that month after month, decade after decade, you know what you’re going to have in your nest egg? Money! Lots of it!
5. Be Outrageously Generous
Don’t miss this, y’all. At the end of the day, true financial peace is having the freedom to live and give like no one else. When you write a plan for your money, get rid of debt, live on less than you make, and start investing for the future, you can be as generous as you want to be and help change the world around you.
But when you make giving a part of your life, it doesn’t just change those around you—it changes you. Studies have shown over and over again that generosity leads to more happiness, contentment and a better quality of life.3 You can’t put a price tag on that!
How to Build Wealth at Any Age
That’s some big-picture financial advice that works no matter how old you are or how much money you make. It’s also true that each decade of your life will have specific challenges and opportunities. So let’s break things down decade by decade to see what you can do to maximize your savings potential.
In fact, the majority of millionaires didn’t even grow up around a lot of money. According to the survey, eight out of 10 millionaires come from families at or below middle-income level. Only 2% of millionaires surveyed said they came from an upper-income family.
The National Study of Millionaires showed a dramatic difference between how Americans think wealthy people get their money and how they actually earn and spend their money.
The salaries wealthy people make is not as much as you might think. The majority of millionaires in the study didn’t have high-level, high-salary jobs. In fact, only 15% of millionaires were in senior leadership roles, such as vice president or C-suite roles (CEO, CFO, COO, etc.). Ninety-three percent (93%) of millionaires said they got their wealth because they worked hard, and saved for the future and invested for the long term, not because they had big salaries.
If building wealth and financial freedom are your destination, the journey always starts with your financial mindset, attitude and habits. Jeff Hayden
T. Harv Eker, author of “Secrets of the Millionaire Mind”, is convinced that anyone can be build wealth and become financially free. But, he opines that what holds most people back from accumulating wealth is an internal mental script or “money blueprint” that tells them that they can’t or shouldn’t.
In his bestselling book, Eker teaches people to identify their internal money blueprint and revise them. However, many critics rightfully argue that his focus on personal psychology as the sole driver of success ignores very real economic and systemic factors such as inequality, sexism and racism which can be possible determinants of one’s income bracket and net worth.
“If your subconscious “financial blueprint” is not set for success, nothing you learn, nothing you know and nothing you do will make much of a difference.” T Harv Eker
Yet, Eker argues that you have a personal wealth blueprint already ingrained in your subconscious mind that will determine your financial life and overall success. What he means is that you can know everything about saving for the future, investing to grow your money, and accumulating wealth, but if your subconscious wealth blueprint isn’t preset to a high level of life and financial success, you will never amass a large amount of wealth or achieve financial freedom.
What people have to realize is that we are all subconsciously taught and conditioned in how to deal with money and wealth, according to Eker. Unfortunately, many of us were taught by family members and acquaintances who didn’t own a lot of assets and did not have a lot of money, so their way of thinking about wealth became your natural and automatic way to think. And since you are a creature of habit, your internal thoughts and beliefs about wealth and money will determine your external results of net worth and cash flow.
“If you want to change your results, you have to start by changing your thoughts.” T. Harv Eker
Your wealth blueprint single-handedly, according to Eker, determines your financial life, because your thoughts lead to feelings, which lead to actions, which lead to your results. Thought is the ‘Mother of all Results’. It’s about a process of manifestation, that your thoughts lead to your feelings, which lead to your actions, which lead to your results.
Thoughts → Feelings → Actions → Results
The reason you think the way you do about money is conditioning. You were taught how to think about money. You weren’t born with money thoughts and beliefs. You learned them. You were conditioned around money, success, and wealth by:
Verbal programming – what you’ve heard,
Modeling – what you’ve seen,
And specific incidences and experiences you’ve had.
No personal wealth mental blueprint is true or false or right or wrong, says Eker. It’s just how you’ve been programmed. Some people are savers. Others are spenders.
There are several important question to ask yourself: What is your current wealth and success blueprint, and what results is it subconsciously moving you toward? Are you set for working hard for your money or are you set to have your money work hard for you? Are you programmed for saving money or for spending money? Are you programmed for managing your money well or mismanaging it?
Bottomline, your wealth blueprint, meaning your thoughts and beliefs, will determine ultimately your financial life and net worth – and can even determine your personal life, according to Eker.
“The vast majority of people simply do not have the internal capacity to create and hold on to large amounts of money and the increased challenges that go with more money and success. That, my friends, is the primary reason they don’t have much money.” T. Harv Eker
More women than ever are taking a seat at the investing table, according to Fidelity Investments.
Fidelity Investments’ 2021 Women and Investing Study was conducted “to gather insights into women’s attitudes and behaviors when it comes to managing their finances” and investing for the long term. The study findings show:
67% of women are now investing outside of retirement
50% of women say they are more interested in investing since the start of the pandemic
42% say they now have more to invest since the start of the pandemic
When women do decide to invest, they are realizing positive results and returns. Analysis of more than 5 million Fidelity customers over the last ten years finds that, on average, women tend to outperform their male counterparts by 40 basis points or 0.4%.
While these investing trends by women are encouraging, still only 1/3 of women see themselves as investors, and additionally:
Only 42% feel confident in their ability to save for the long term, including retirement
Only 33% feel confident in their ability make investment decisions
Only 35% feel confident their non-retirement savings are invested appropriately
Only 14% of women say they know a lot about saving and investing
Overall, women feel less confident when it comes to long-term financial planning and investing to grow their money and build wealth, according to Fidelity Investments.
Women who set financial goals, create a financial plan and take the following additional actions feel more confident in their ability to save for the future and make investment decisions to help their savings grow:
Determine current financial status (net worth and cash flow)
Pay themselves first, automate their savings and invest consistently a portion of every paycheck
Select diversified investments like stocks, bonds, mutual funds or ETFs
Take a long-term approach to investing
Starting early and track progress regularly
Making time to educate themselves about personal finance topics
Bottomline, 64% of women surveyed by Fidelity said that they would like to be more active in their finances, including investment decisions. Not surprisingly, the factors that holds them back include:
70% of women say to invest they would need to know more about picking individual stocks.
65% of women say they’d be more likely to invest, or invest more, if they had clear plan or steps to do so.
It’s never too late for you to get started setting financial goals, creating a financial plan and investing for the long term.
“Some liberal lawmakers hope the “billionaire tax” will eventually be extended to millionaires.”
A ‘Billionaires Income Tax’ would be a fundamental change in how the tax system operates in the United States, and open up a new revenue stream for the Treasury. The wealth tax plan would “get at the wealth of the richest Americans that currently goes untaxed until assets are sold”, according to Roll Call.
The Senate has proposed a special new tax on the uber wealthy, think billionaires, that Democrats will use to help pay for their next big multi-trillion dollar ‘Build Back Better’ fiscal spending package. The proposed tax on the net worth of billionaires’ stock holdings, real estate and other assets could help Democrats accomplish goals of raising taxes on the wealthy and funding their pet social safety net and climate programs.
The Senate Finance Committee Chair wants to “begin requiring people with more than $1 billion in assets, or who earn more than $100 million in three consecutive years, to begin paying capital gains taxes each year on the appreciation in value of their assets, regardless of whether they are sold”, Politico reported.
For too long, billionaires have played by a different set of rules that allows them to cheat the system & pay nothing in taxes. @RonWyden's Billionaires Income Tax is a crucial step to crack down on tax avoidance schemes so the richest Americans pay what they owe. https://t.co/pAaXUDqC0Z
The ‘billionaire tax’ plan would reportedly hit around 700 Americans and generate several hundred billion dollars in tax receipts. “We have a historic opportunity with the Billionaires Income Tax to restore fairness in our tax code, and fund critical investments in American families,” said Senate Finance Chair Ron Wyden (D-Ore.). “The Billionaires Income Tax would ensure billionaires pay tax each year, just like working Americans.”
The proposal, should it pass Congress and be signed into law by the President, would almost certainly be challenged in federal court on its constitutionality. The Constitution restricts so-called direct taxes, ‘a term referring to levies imposed directly on someone that can’t be shifted onto someone else’. There’s a big exception for income taxes, as a result of the 16th Amendment, which allows Congress to tax income and earnings. (All current taxes are either forms of income tax or levies on transactions).
The proposed plan would tax people on the appreciation of their publicly traded marketable securities. Effectively, the plan would tax billionaires’ assets on any gains or appreciation in value of those assets. For example, if that asset became worth $110, they’d only owe on the $10 gain. And, the proposal would begin by imposing a one-time tax on all the gains that had accrued before the tax had been created.
Stocks, bonds and other publicly traded assets, marketable securities, would be assessed the levy each year. Harder-to-value assets like real estate or ownership stakes in privately held businesses would not be taxed until they are sold, but would then face an interest charge designed to approximate the tax people would have faced if they had been publicly traded assets.
Capital losses
Under the proposal, a billionaire subject to the tax whose asset values take a dive during the year would have two options. They could choose to:
Carry those losses forward to offset potential future mark-to-market gains, or
Carry them back to a year within the previous three to generate refunds for taxes paid on unrealized gains.
Carrybacks could only offset prior mark-to-market tax, not taxes paid on other income.
Nevertheless, the plan would incentivize the wealthy to move into non-publicly traded assets in order to avoid having to pay the IRS. And if the billionaire wealth tax survives the certain court challenges under the current conservative Supreme Court, you can safely bet that many liberal leaning states will follow suit and implement their own version of a billionaire or millionaire wealth tax.
This new billionaire tax on wealth, instead on income, is a tax that some liberals lawmakers hope will eventually be extended to include every millionaire in assets, regardless of actual net worth. However, Congress always seem able to devise work arounds to exclude their own financial assets and the assets of their big re-election campaign donors from these extremely regressive tax policies.
Additionally, this proposal, if enacted into law, would dramatically impact compound growth of assets and, would have the unintended consequences of slowing job creation and capital investments in the U.S.
Senator Mitt Romney (R-Utah) said that the billionaire tax will leave the rich thinking: “I don’t want to invest in the stock market, because as that goes up, I gotta get taxed. So maybe I will instead invest in a ranch or in paintings or things that don’t build jobs and create a stronger economy.”
Choosing a financial advisor is a major life decision that can potentially determine your financial net worth trajectory for years to come.
A 2020 Northwestern Mutual study found that 71% of U.S. adults admit their financial planning needs improvement. However, only 29% of Americans work with a financial advisor.
The value of working with a financial advisor varies by person and advisors are legally prohibited from promising returns, but research suggests people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement, according to SmartAsset.com.
A recent Vanguard study found that, on average, a $500K investment would grow to over $3.4 million under the care of an advisor over 25 years, whereas the expected value from self-management would be $1.69 million, or 50% less. In other words, an advisor guided portfolio would average 8% annualized growth over a 25-year period, compared to 5% from a self-managed portfolio.
But, it essential that you do your homework in selecting a financial advisor. There are several key questions to ask and factors to consider regarding anyone who may advise you in money matters:
What’s your philosophy of investing?” If they can’t articulate their philosophy in a few simple paragraphs, in plain English, then keep looking.
“What has been one of your greatest triumphs in the market? And what was the decision making that brought you to it? What did you learn from the process?” Then ask, “What about one of your biggest mistakes? What went wrong and what did you learn from it?”
“What do you own yourself? Where do you put your own money?”
Hire an advisor who is a Fiduciary. By definition, a fiduciary is an individual who is ethically bound to act in another person’s best interest. This obligation eliminates conflict of interest concerns and makes an advisor’s advice more trustworthy.
Pick an advisor with an compatible strategy. Each advisor has a unique strategy. Some advisors may suggest aggressive investments, while others are more conservative. If you prefer to go all-in on stocks, an advisor that prefers bonds and index funds is not a great match for your style.
Ask about credentials. To give investment advice, financial advisors are required to pass a test. Ask your advisor about their licenses, tests, and credentials. Financial advisors tests include the Series 7, and Series 66 or Series 65. Some advisors go a step further and become a Certified Financial Planner, or CFP.
Many people who want to oversee and manage your money probably don’t have significant assets of their own. You would want a money manager to have skin in the game, to be eating their own cooking.
It is said that Albert Einstein once commented that “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
The Power of Compound Interest shows that you can put your money to work and watch it grow. The power of compounding works by growing your wealth exponentially. It adds the profit earned back to the principal amount and then reinvests the entire sum to accelerate the profit earning process.
When you earn interest on savings and returns on investments, that interest (or returns) then earns interest (or returns) on itself and this amount is compounded monthly. The higher the interest rates, the faster and the more your money grows!
The sooner you start to save, the greater the benefit of compound interest. This is one reason for the success of many investors. Anyone can take advantage of the benefits of compounding through starting a disciplined savings and investing program.
Yet, compounding interest can be good or bad depending on whether you are a saver or a borrower, respectively.
Three factors will influence the rate at which your money compounds. These factors are:
The interest rate or rate of return that you make on your investment.
Time left to grow or the age you start investing. The more time you give your money to build upon itself, the more it compounds.
The tax rate and when you pay taxes on your interest. You will end up with more accumulated wealth if you don’t have to pay taxes, or defer paying taxes until the end of the compounding period rather than at the end of each tax year. This is why tax-deferred accounts are so important.
Finally, it’s important to resist the temptation of seeking higher interest rates or returns, because higher interest rates and returns always bring higher risk. Unless you know what you’re doing, no matter how successful you are along the way, you always want to avoid the possibility of losing money.
Benjamin Graham, known as the father of value investing, was aware of the risk of ‘chasing yield or return’ when he said that “more money has been lost reaching for a little extra return or yield than has been lost to speculating.”
Gratitude in all things
