Jerry Taylor breaks down compound interest and why starting early matters. Open a Roth IRA, begin with low-risk long-term investments, then gradually move some returns into higher-risk assets. Mutual funds with consistent track records work as an accessible starting point.
Albert Einstein told us that the 8th wonder of the world is compounding interest. Compounding interest is just the concept of a certain amount of money earning interest and then that amount of money earning interest on top of that. The key to creating large amounts of wealth through compounding interest is to start early. We talked last week about starting a Roth IRA early. Contribute to that throughout your life and don't touch it. When you have some more money to invest, as early as you can, start off with long-term low-risk investments. As you gradually begin to make money on those investments, take some of your earnings and put it into higher risk investments. That type of system takes advantage of compounding interest and it allows you to diversify your investments and spread the risk because there will be downturns in the market during your lifetime. A good way to start off is with mutual funds. Look for the ones that have the best record of consistently producing returns.
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