The Fastest And Easiest Way To Benefit From Compound Interest In Canada

A lot of assets that people are aware of are assets that you need to either sell or cash in, or refinance or do something. And that in itself is going to interrupt the compounding of that asset. So when we're looking to leverage and grow wealth, we want to also add into our portfolio assets that won't be interrupted when we access the liquidity that we need.

What is the fastest and easiest way to benefit from compound interest? I'm here with my colleague, Roman Pushkar. I'm Liz Lamond. And we're actually going to start in talking about compound interest first, and we're going to wait until the end to tell you what you can do to really elevate your results with compound interest. So, Roman, what can you tell us about just defining compound interest? What is compound interest?

The compound interest is the interest that any asset or any investment is making on the principle where you don't actually pull the interest from the investment, but you rather reinvest. Let's say you've invested $10,000 into an asset, and let's say you're making 8%. Simple interest is where you, every single year, you actually withdrawing $800 out of your investment and you're leaving the principal working and making money. And then every single year, you withdraw actually your simple interest comp. Interest, on the other hand, is where you reinvest that interest that you've made for the first year, and then the next year the interest is actually earned on the principal and interest from the first year, third year, the interest is accumulated and compounded on the first year principal, first year interest, and then second year interest. And this kind of snowball effect where the compounding starts exponentially growing every single year.

We're going to talk about an example where if you had a penny and it was doubling in value every single day. So on day one, we have one cent, Day two, we have two cents. Day three, we have four cents, et cetera, et cetera, et cetera. Well, by day 30, we're going to have over $5 million. Now, I would love a compounding account like this. I'm sure you would too, Roman.

But what we want to talk about, and unfortunately, I don't know of one that ex. That works quite this well. But what we want to talk about is what happens if we interrupt compounding, because that's a really important part about how compound interest works, that people often don't communicate, is that the compound interest is fantastic as long as you can leave the money there to continue to compound. So let's say we get to day 24, Roman, and we decide that we want to take out some money to invest. We want to use some for a deposit on a piece of real estate or maybe some into some stocks or crypto or whatever the investment is that the person wants to do. What do you think is going to happen to the compounding of our money? So I just want everybody to take note. We've got over 5 million by day 30 with this doubling. Now, if we decide to take money out at day 24, so we're going to interrupt the compounding and we're going to take out 83,800. Look, what happens is that by day 25, all we've got left in the account to compound is 86.

And so that's going to compound now through to day 30. So the total amount of capital that we're going to end up by day 30 is about $85,000. Now, we do have our other asset, whatever we decided to invest in. However, the difference between having 5 million versus 85,000 in this example is massive. So understanding that this is an accelerated example of the impact of interrupting our compounding of our money, I just wanted.

To add that everyone on the Internet is talking about compounding how great it is, but few people talk about that. Not only you should be compounding in your life in order to actually outpace inflation, in order to keep all your money that you make and keep as much as you can so your money grows for you, but also a few people only talk about that it is more important to never interrupt compounding rather than just compound. And what happens when you, let's say you've gave it 20 years or 30 years of compounding investment, like real estate, maybe it's a stock market account or registered account of some sort. And what happens when you actually access your money, when you withdraw some portion of it? This is exactly what happens when you interrupt compounding a huge portion of that energy that money creates. The compounding creates is actually lost, and it is lost forever. And the difference is significant.

And a lot of assets that people are aware of are assets that you need to either sell or cash in or refinance or do something. And that in itself is going to interrupt the compounding of that asset. So when we're looking to leverage and grow wealth, we want to also add into our portfolio assets that won't be interrupted when we access the liquidity that we need. Because to grow our portfolio, we all know we need access to liquidity. So it's really important to have as part of your whole financial picture an asset that enables your money to continue to compound without giving up access to liquidity. So there is an asset that you can put as part of your portfolio that enables you to have the magic of compound interest without without interrupting it while still having access to liquidity. What is it Roman?

It is called the participating dividend paying whole life insurance policy. And to be honest with you Liz, I didn't know something like that exist up until I discovered this amazing concept of becoming your own banker. So the way it compounds is the whole life policy has contractual guaranteed growth in the policies so that your capital grows every single day. And instead of interrupting compounding effect in the policy, I have an option to actually access insurance companies money through something called policy loans where I will take other people's money from the insurance company. Where I use policy loans, I repay them back, but my capital still grows no matter what and my capital remains intact.

So if you'd like to learn more about how you can create an asset that is complementary to the other assets in your portfolio and enables you to have uninterrupted compound growth, then please click on the videos beside to learn more.