The Power of Compounding - Ultimate Path to Riches~

TIME! IS OF THE ESSENCE!!

Hey guys, I'm about to reveal to you the ultimate form of money making. (However this is only after you have a significant amount saved up...). If you’re under the age of 35, you have one of the biggest advantages out there when it comes to planning for eventual financial freedom.

Many of  us are here to reach that financial freedom.  Perhaps delving into the world of cryptocurrency is the fastest way to get there... But what happens if and when we finally make it? I'm sure that we of all people know just how volatile cryptocurrency is; and once we have hopefully made our hundred thousands/millions- I am sure that we would like to invest in something a little more safe, something a little more reliable, something... like a blue chip stock which pays dividends and will continue to exist for generations to pass.  

From 2008 to the present day approximately $9 trillion has been injected into the world economy from the four most powerful central banks via printing.  The banks then use that money to buy financial assets, invest in index funds- (the reason why S&P500 has consistently been going up 10%.), and manipulate overall currency.  However, this money printing and buying of financial assets is simply UNSUSTAINABLE.  Eventually, there will be serious ramifications for this and god-forbid that this will all blow up in our faces.  With that being said we are starting to see many people invest in things such as Bitcoin and Gold because there is a huge fear that doomsday is coming..

But this post was not meant to scare but rather to inform.  That's right, it is to inform you great people that perhaps you do not need to worry about your wealth if you believe and execute the Power of Compounding.  As I've stated previously my argument lies in investing in blue chip stocks.  I will use Proctor & Gamble, Pepsi, and Wal-Mart as my examples for blue chip- dividend paying stocks.  These stocks are great to invest in once you have enough savings because these are companies that are not affected by bad credit cycles, a bad economy, or inflation.  These companies offer products that we consume everyday and that are cheap enough that we do not consider too expensive to second guess the purchase.  The real treasure that lies within these stocks however; are dividends.  Dividends, to put short are an investor's share of a company's profits given to him or her as a part-owner of the company.  I have done the due diligence to look up one of our blue chip stocks annual dividend rate and have recorded these numbers.

Proctor & Gamble has a 3.09% dividend rate, with a 5% dividend Growth rate, and buys back 1.38% of its shares.  Buybacks are very important to evaluate when investing in the stock market because anytime you do see the buyback percentage you can effectively add that to the dividend rate so in this example our overall net dividend is 4.37%.  BUT WAIT... There's more... The 5% dividend growth rate gets multiplied into current dividend yield! So for the following year we will receive a dividend percentage of 3.09 x 1.05 = 3.24% + BUYBACKS.

If you have followed me till here EXCELLENT.  I now present you with the concept of Compounding.  Again we will use PG as our example. If you invest $100,000 into PG this year you will receive $4,370 for the following year in dividends. Let's now REINVEST that $4,370 and compound that for the next year which also includes the 5% growth rate.  $104,370 x 1.0462 = $109,191.  Year 3- $109,191 x 1.0478= $114,410.  So now that I've displayed what it's like to compound for 3 years let's compare that to when you take out dividends and DON'T REINVEST.  We will get $4,370 for the first year, $4,620 for year two, and $4,780 for Year 3.  So the total difference in 3 years is $640 - yes not significant but what about if we compared for 10, 20 years respectively?  

We get the difference of $12,900 in year 10 and difference in year 20 is an astonishing $153,000!! As you can see as more time passes, the amount you make goes up exponentially!! This is actually how Warren Buffet became one of the richest people in the world by using this method!!

This is the POWER OF COMPOUNDING!! 

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As always THANKS FOR READING!!

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