Boost your profit by Re-Investing
We all hear that we have to invest our money because banks just don’t give the best interest rates. Just by looking around and learning more about the investing industry, you can easily find out that with very little risk you can easily 2-3 times the amount of interest of your bank.
While investment is very current and is practiced by more and more people, one great aspect of investment that is overlooked is re-investment. Another term for re-investment is compounding. Compounding is the simple fact of taking the money you made with the interest or the profits of your business, and simple put it back in your investment pool.
The power of compounding really starts to show in the long term. This is maybe the cause why so many people don’t really think of re-investing. It also seems logical, as we don’t want to wait an eternity to start spending our money. However, each person should have at least a portion of this money that will be there only for re-investment purposes.
Let’s just take an example with a mutual fund that returns 15% a year. Ignoring tax for demonstration purposes, a $10,000 investment would bring in $1500 a year, every year, and in 10 years, you would make $15,000 had you not compounded your money.
Had you left all your money and profits in there year in and year out, your compounded profits would have been just a little over $45,000.
Do you see the point? This is a 300% difference. There is a downside of course. If the fund goes bust, you lose all money including profits and everything is gone. With careful management, this kind of thing almost never happens.
Waiting is probably the worst part when someone wants to get their profits, especially when you have to wait in years. This is why dedicating a percentage of your portfolio for compounding is the best option. A percentage as low at 10% or 20% can make a difference.
If you have a website, re-investing is also a great asset. Dedicating a certain amount of your monthly earnings in forms of advertising and development is a very smart move. If your earnings are just complimentary and a side hobby, re-investing 50% or even 100% of everything back smartly can show great gains.