In order for women to cash in on investing opportunities, here are some key things that every woman should know:
1. Understand compound interest and time value of money. The earlier you invest, the more wealth you can accumulate. That’s because compound interest allows you to earn interest on your interest. It isn’t as confusing as it sounds.
When you invest, the initial amount you deposit is called the principal. If your principal is $100 and you earn a 2% return, you’d gain $2. Combining your principal and the interest brings your balance to $102. Now you can earn interest on $102 instead of just on your $100 principal. Over 10 years, you’d end up with $121.90.
That doesn’t sound like much until you consider it on a larger scale. Let’s increase the investment to $1,000 and plan to add $1,000 to the account every year. Considering the average stock market return is 7%, your money will grow to $108,685.30 after 30 years.
In this scenario, you made more than $77,000 thanks to the power of compound interest and the time value of money.