Harnessing the Power of Compounding
At Hennion & Walsh, we proudly work every day with individual investors. We work collectively to help our clients live the life they want up to and through retirement. In this article, we will dive into a crucial aspect of smart investing—the power of compounding. Whether it is one of our bond portfolios for income or one of our equity portfolios for growth, we want every dollar you invest with us to work for you.
We Believe in the Power of Compounding.
When it comes to building long-term wealth for retirement, we believe compounding returns on your investments will help you achieve your retirement and financial goals. Compounding is the process by which an investment generates earnings, which are then reinvested to generate even more earnings in the future. Over time, this snowball effect can potentially result in substantial returns.
The Foundations of Compounding.
The famous quote attributed to Albert Einstein often illustrates compounding: “Compound interest is the eighth wonder of the world. Those who understand it earn it; those who don’t, pay it.” At its core, compounding is the process of reinvesting earnings, such as interest or dividends, so that they generate additional earnings in subsequent periods. Over time, the total investment grows exponentially rather than linearly.
One of the classic examples of compounding is a savings account. You may have seen banks advertising “High-Yield” accounts where they offer an array of benefits. These accounts, commonly referred to as principal, take an initial deposit and use accumulated interest to grow that original amount over time. The result is a future value that is larger than the principal amount.
Let’s Break Down the Elements That Make Compounding So Powerful:
- Time: Time is perhaps the most critical factor in the compounding equation. Use time to your advantage: the longer your money is invested, the more time it has to grow. Therefore, starting early is essential for building substantial wealth.
- Rate of Return: The rate at which your investment grows (interest rate, dividend yield, or capital appreciation) significantly impacts the outcome. Higher returns lead to faster growth.
- Reinvestment: Reinvesting your earnings is the essence of compounding. Instead of withdrawing dividends or interest, you let them stay invested, generating further returns.
With today’s current market volatility and economic uncertainty, now may be the time to review your current investment portfolios and get a second opinion on how those investments are performing. Do your current investments withstand today’s volatility and uncertainty? Do they utilize the power of compounding to help you achieve your financial goals in the future? If you are unsure about the questions above contact us.
Let Hennion & Walsh Offer a Second Opinion
Curious to learn more? Our unmatched client experience will give you peace of mind. Just as you may seek a second opinion about your health, we believe successful investors can gain value and peace of mind by getting a second opinion on their financial health. So, whether you’re worried about today’s uncertain economic environment or looking for increased peace of mind, we can help. Get a complimentary second opinion on all your investment accounts not held at Hennion & Walsh today!
Hennion & Walsh Experience
We have investment professionals, planners, and portfolio managers who can collectively analyze your situation through the lens of their respective disciplines. Each member brings valuable insights to apply to your situation. Whether you are looking for income strategy guidance or growth strategy guidance, a second opinion of all your investment accounts not currently held at Hennion & Walsh could be beneficial to your financial health.
Disclosures:
The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
This commentary is not a recommendation to buy or sell a specific security. Investing in bonds involves risk including possible loss of principal and risk that any income may not be reinvested at the original earned interest rate. Income may be subject to state, local, or federal alternative minimum tax. Past performance is no guarantee of future results.
