What is Compound Interest Investment? [Get Rich on Any Income]

How does a housekeeper save hundreds of thousands
on almost no income? What’s the investment that will grow your
money whether you’re starting with $10 or $10,000? In this video, I’m revealing the power of
compound interest investment. I’ll not only show you what compound interest
means but will reveal three investments you can use to grow your dough fast. We’re talking compound interest today on
Let’s Talk Money! Beat debt. Make money. Make your money work for you. Creating the financial future you deserve. Let’s Talk Money. Joseph Hogue with the Let’s Talk Money channel
here on YouTube. I want to send a special shout out to everyone
in the community, thank you for taking a little of your time to be here today. If you’re not part of the community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. We hear about compound interest and maybe
even have seen it a little in our bank accounts but few people know the real power of compound
interest investment. It’s just hard to get excited about $0.35
interest in a savings account. Oseola McCarty had a slightly different perspective. Oseola was born in Mississippi in 1908. She spent the better part of her 91 years
washing clothes for others, living in the same house for almost 75 years and saving
her money. Now even living the frugal lifestyle, the
money made from doing other people’s wash isn’t the kind of job that makes you rich
but in 1995, Oseola donated $150,000 to the University of Southern Mississippi and still
had more than a hundred grand in the bank. You CAN get rich on any income and THAT’S
the power of compound interest investing. In this video, I’ll explain compound interest
and walk you through the formula. We’ll talk through a couple of examples
and then I’ll reveal three of the best investments to make money on your money. We’re not talking about growing your bank
account by a few pennies each month. I’ll be showing you three investments with
compound rates upwards of 10%…the kind of interest that WILL grow your money fast. But what is compound interest? Einstein called compound interest the “greatest
mathematical discovery of all time.” I just call it the easiest way to financial
freedom. Here’s the formula for compound interest
but don’t let the math fool you. This is one of the easiest ideas to understand. Compound interest is just your money times
an interest rate and how long you let it grow…but it’s that time factor that’s the real
power here because you don’t just add the interest you earn every year onto your money. Compound interest is about making your money
work for you. It’s the money you make on that interest. Let’s look at an example here. You start with a $1,000 investment making
5% a year. After that first year, you’ve made 5% so
an extra $50 in your account. Now that second year, you make another 5%
on your original thousand dollars but you also make 5% on the $50 you earned in the
first year. That means you make $52.50 in the second year. An extra $2.50 isn’t something most people
would get excited about but look at how that money grows. At the end of six years, you have $340.10
more in the account. That’s $40 more in compound interest, forty-bucks
extra you made off the interest. Take it out further and over 30 years you’d
have $4,322 in the account. You’d earn just $1,500 in that annual $50
interest but over $2,800 on the compound interest returns! And that’s on a relatively low 5% interest
rate. That’s about what you’ll earn on bonds
but take this further with an 8.5% compounding return in stocks or some of the investments
I’ll show you later and watch your account explode. Just that 8.5% compounding return on stocks
would mean over $10.500 in stocks over 30 years, all from one single thousand-dollar
investment. Another question I get a lot is just, “How
do I get compound interest?” So you get compound interest in any investment
or account that pays a return and you leave the money in your account to grow. And the great thing about compound interest
is that it works on any amount of investment, whether you’re starting with $10 or $10,000! Now banks do offer compound interest, but
how much are you making on the average 0.1% savings rate? Even the 2% interest from some online banks
is barely keeping up with inflation. This is actually how Oseola made a lot of
her money and God bless her, she grew an amazing fortune on those savings but even her advisor
has said that she would have been a millionaire if they had started compound interest investing
sooner. What I want to do is show you three compound
interest investments you can use to grow your money faster. First though, a feedback question for the
community. What other personal finance concepts do you
want to see covered here on Let’s Talk Money? We’re talking those day-to-day financial
decisions like buy vs rent and are credit card rewards programs worth it. Scroll down and let me know in the comments,
what personal finance questions do you want answered. Now on to those three compound interest investments
and the next step up from a savings account is going to be bond investing. Bonds are debt issued by companies or governments,
paying interest twice a year and then returning the amount borrowed to investors at the end
of the loan. So you get that regular interest payment that
compounds twice a year and you can get rates of four to six percent on some fairly safe
bonds. You can invest in individual bonds or go with
my favorite, get thousands of individual bonds with one fund like this iShares High Yield
Corporate Bond ETF, ticker HYG. This fund pays a 5.3% yield and has actually
produced a total return of 7% over the last decade, so that means you would have made
money on the share price as well. The bond fund is well diversified across the
major sectors and a little overweight in the safer sectors like telecom and consumer goods
so you don’t have to worry about defaults from a particular sector. To see the power of compounding in this bond
investment, look at how just $200 a month grows over 30 years. On just $72,000 invested over those three
decades, you’d end up with more than a quarter million dollars. That’s over a $150,000 profit in compounded
returns and what I want you to notice in this chart is that the line gets steeper over time. That’s the power of compounding interest. If we were to let that line run 40 or 50 years,
it would be going almost straight up earning so much money every year. Those of you in the community knew I couldn’t
get through a whole video without talking about dividend stocks. Besides paying that consistent cash flow every
quarter, dividend stocks just beat the market with amazing long-term returns. We’ve been beating the overall market with
our 2019 Dividend Portfolio of individual stocks but for this video, I wanted to look
at an easy, no-stress dividend fund for those compound returns. The Schwab US Dividend ETF, ticker SCHD, pays
a 2.9% yield and charges one of the lowest expense ratios you’ll see at just 0.06%
a year. The fund holds shares of some of the best
and biggest dividend payers like Intel, Proctor and Gamble and Coca-Cola. Now that 2.9% dividend yield may not sound
like much but this fund has produced a 10.2% annualized return over the last five years. Taking our example of investing $200 a month
over 30 years and that becomes nearly $410,000 in your account. That’s a profit of over $337,000 on your
$72,000 invested over the three decades, more than twice what compounding returns made you
on the bond fund. Our next compound interest investment is a
controversial one, but stick with me because I’m going to show you how to get nearly
10% cash flow to grow your money. Peer-to-peer lending is just like bond investing
except you’re lending money to people rather than big corporations or governments. Borrowers fill out an application on sites
like Lending Club and investors choose which loans they want to fund. Borrowers make a monthly payment of principal
and interest which Lending Club collects and automatically sends to any investors in the
loan. Now the risk is higher in p2p versus that
bond investment we saw earlier. The average rate on loans in my Lending Club
portfolio is around 12.6% and I’ve made an average 9.6% annual return over the last
four years. That means about three percent of the loans
I invested in, actually 13 loans of about 400, have failed to pay in that time and that
9.6% return is closer to 8.5% over the last year. But that 8.5% annual return with our example
means we grow our portfolio to almost $300,000 over the 30 years and a profit of $226,000. That 8.5% might not sound so hot against the
10% annual return in the dividend fund but understand that you want to diversify your
investments. Having all your money in a stock fund, even
a great dividend fund, sets you up for major losses during a market crash. Peer lending returns will also be volatile
around a market crash but they’re not going to fall as hard as stocks. You’ll still get that monthly cash payment
from the loans being paid off and you’ll still get that compounding return working
for you. Click on the video to the right to see how
I created a portfolio of dividend stocks that will make you millions with that idea of compound
interest investing. Seven companies that pay dividends and grow
their stock price. Don’t forget to join the Let’s Talk Money
community by tapping that subscribe button and the bell notification.

41 thoughts on “What is Compound Interest Investment? [Get Rich on Any Income]”

  1. Must Watch! 7 Dividend Stocks and How Many Shares to Buy to Make $1,000 a Month 💰 https://youtu.be/GnAuLqO6bfs

  2. This is the KEY to financial independence and retiring early (FIRE movement)

    By not taking advantage of compound interest in life, one is at a significant financial disadvantage.

  3. I'd like to see ways to aggressively increase income outside of your job.

    I've been aggressively funding my portfolio with about 2k a month. Im obsessed with building my dividend portfolio but I hate having to wait for my check.

    I have small side hustles on the side but nothing has really taken off. I think the biggest factor for me is that I'm impatient. The traditional route of getting a raise or getting some kind of license is fine, but I don't want to wait for those things.

  4. I LOVE compound interest the sooner you get started investing the better off you'll be over the long term! 🙂

  5. I would like to hear a podcast about Home Equity line of credit vs home equity loans. Also your thoughts about using your HELOC in a first lien position as to pay off all bills and your mortgage. Love this channel and Thanks for all you do.

  6. Savings accounts with compounding interest is the foundation I believe everyone should have, next in investing is either dividend stock reinvesting or real estate

  7. Great video again as usual Joseph but would it still be taxed every year if I don't touch my money for let's say 10 years?…Or perhaps it'll be less taxed!!

  8. I’d be interested in investment vehicles/buckets and recommended percentages, e.g. max Roth or traditional 401K (%stock, bond), max Roth IRA (recommendation to put in), Trad IRA or HSA, Bitcoin or gold under your bed…

  9. Would love to hear something about contrarian investing. Is there a sense in buying the cheap unloved sectors when nobody wants them? 🙂

  10. Joseph, would love to hear your thoughts on taking out an equity line of credit against your investments, in my case through E*Trade, vs selling off the assets in the portfolio and using that money, vs a traditional bank loan. And would that method be worthwhile as part of buying a house, perhaps to put more money down and/or to use for renovations/remodeling for kitchen, bathrooms, flooring, etc?

  11. You are a decent, honest and transparent Youtuber.
    You don't buy subscribers, likes, or comments.
    I just realized many YouTubers and channels do it. But I think you don't.
    ¡Dios le Bendiga, Don Joseph!

  12. Hey,

    I love your show. Great job in giving us such a unique and fresh outlook.

    My question is, I have been investing in dividend-paying stocks, I am at the point where I make $7,200 /yr or avg of $600/mo. I want to buy a new/used car for my family. It would give us so much help to do so. I am preapproved for a payment of $300/mo and a 3.8% interest rate. Should I finance it and pay it monthly with my dividend income or pay the car outright?

    I think it's similar to investing in property, should I use my property income to pay for the car or should I use my hard-earned money to pay it outright?

  13. GREAT VIDEO JOE | Compound Interest is the true magic with the time value of money! Consistently contribute money towards your future and you will be shocked when your money snowballs and starts to really grow quickly! GREAT VIDEO! 👍🏻😎

  14. Great video again Joseph , compound interest is very nice , unfortunately I started late in my life . I’m into long term dividends holding and covered calls myself for the most part . I wanted to get your int of view on this tho , let’s says I love a stock like MSFT , in your opinion what’s the easiest way to make money on it only between, buying a deep OTM covered call let’s say more than a year versus simply holding on to them as growth. ? I’ve heard that if you really like a stock and believe it then sometimes it’s better to do deep OTM 1yr plus call option versus just holding it . Just want to get your thoughts on that . Thanks man

  15. Passive income tax? Like how much will you get tax 250k with 4% annually ? Living off passive income how much will you pay tax . ?

  16. Is it possible to create a visual guide in compounding with either ETF’s or Stocks? Explaining the amount of shares to own to get to certain financial goals? To better understand what you just talked about. Thank you!

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