The Power of Compound Returns

Today, I’m going to show you one of the simplest ways to massively grow your wealth…

As part of our “Five Days for a Wealthy 2017,” my team and I are covering the five most important steps you need to take today to ensure a successful financial future. This is Step No. 2…

My dad was a fantastic doctor, bright and kind with his patients. But he was a terrible investor.

I watched him get greedy (like most people do). I watched him let his losers run and cut his profits off early (like most people do). Occasionally, he’d buy off some tip at a cocktail party (like most people do)…

Most of the time he ignored earnings, income, cash flows, or any real numbers when he made an investment in his brokerage account. He made most of his decisions with that account based on a guess or a “hot tip.”

But luckily, he considered his brokerage account “play money.” And he rarely paid a lot of attention to it.

His retirement savings was a different thing. With that money, he took advantage of the one thing that can make anyone wealthy. You can do it, too.

I shared the secret I’m about to tell you about with my sister about 25 years ago. She credits me with showing her the way to becoming a millionaire.

Today, she lives in Bozeman, Montana with her husband and two sons. Their house offers a beautiful view of the mountains. They have the time and money to do almost anything they want.

The secret is not hard to grasp. You just have to understand a few simple principles. But as you might imagine, it does take some time and a little effort on your part.

It starts with one simple idea… compound returns.

If you’re not sure what compound returns are, don’t worry. They’re easy to understand and a powerful tool when you put them to work.

Simply stated, compound returns are money you make off the money you make. And the more money you make, the more money your money makes off the money your money makes. I hope you’re smiling, but here’s what happens…

Imagine you’re 40 years old and subscribe to my letter year after year, making consistent 12% annual returns. (Since inception, our portfolio has averaged 12% annual returns. But I can’t guarantee this is what you’ll make.) What will happen to your portfolio by the time you retire at the age of 67? You’ll have earned more than $662,000. Here’s how: If you start investing with $10,000, at the end of the first year you’ll have about $11,200 (not including taxes or fees). You made $1,200 on your initial investment.

But in your second year… you’re not starting over with $10,000. The $1,200 you earned in the first year will be making money for you, too. So assuming gains of 12%, you’ll have earned another $1,200 on your original capital plus another $144 on the profits from the previous year’s $1,200.

You’re not just multiplying $1,200 times 25 years. (That only gives you $30,000.) Where does the other $632,000 come from? That’s the secret. The money starts making money on top of itself – your money is compounding.

The money you make in the first year, in this case $1,200, starts making money in the second year, third year, and so on… It continues this way for every stream of money you compound. So the $1,200 you make in your second year also makes $144 in the third.

But there’s more. The $144 you make in the second year generated by your first $1,200 now makes $17.28 on itself in the third year. Take a look at the diagram below and you’ll see how by the end of your third year you now have $14,049.28.

Earning 12% Interest on $10,000

  Year 1 Year 2 Year 3
Total Investment $10,000 $11,200 $12,544
12% Interest Earned $1,200 $1,344 $1,505.28
Year-End Amount $11,200 $12,544 $14,049.28

And the money just keeps building.

That’s why this secret is so powerful. By plowing your earnings back into your portfolio, you can get your money to start working for itself and amass a fortune from your initial investments.

And the sooner you start, the better.

Here’s to our health, wealth, and a great retirement,

Dr. David Eifrig and the Retirement Millionaire Daily Research Team
December 20, 2016

P.S. Compounding returns is a strategy I use in my Retirement Millionaire newsletter. And just last week, I released a new report where I detail five share-holder friendly companies than can help compound your wealth.

Those who are part of the Retirement Millionaire Lifetime Partnership have full access to this new report right here. Lifetime subscribers also receive monthly Uncut podcasts where I discuss each Retirement Millionaire issue in greater depth. And, every three months, I send one hand-picked covered-call trade from my options-trading service Retirement Trader.

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