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Compound Interest – The Key to Wealth

If you were to start with your very first paycheck at age 18 and put away $100 every month into a shoebox in your closet, 47 years later when you wanted to retire at age 65, you would have a $56,400 nest egg. If, on the other hand, you put it into 2% 5-year CDs, you would have $187,469.09. It didn’t cost you any more out of your budget, you simply needed to place it where it could earn interest, and interest on top of interest. And, this scenario is just considering a very modest 2% return. At 10% it gets really exciting because your $100 per month would grow to over $2.5 million.

How to Accomplish Your Goals

One must also keep in mind that when considering what amount of return you can get from commercial real estate that you can get double bang for your buck with many types of properties. Not only can you enjoy the capital appreciation return but also an income return. The trick is taking those returns and investing them once again so that you can enjoy the same compound interest advantage as noted in the shoebox vs. CD account scenario. This is where it can get a bit challenging.

Each month that any income you have sits in a low-interest paying savings account or God-forbid that shoebox, awaiting the chance for a new real estate investment, you are not getting the higher return and thus not able to take full advantage of compound interest. What you need is a way to get it back into the commercial real estate market quickly and efficiently.

The solution is by doing your commercial real estate investing in a fund rather than through individual investments. By investing in a commercial real estate fund, income from your investment as well as other investors is continually reinvested through ongoing acquisitions to keep the return steady and everyone’s investment growing.

Safeguarding Your Investment

Another benefit to using a commercial real estate fund instead of investing in commercial real estate on an individual basis is that you are diversifying risk tremendously. The last thing you want to do is earn killer returns for much of your life only to have to start at square one because a bad investment pulled the rug out from under your feet.

Start Early

The best advice when it comes to using compound interest to create wealth is to start early. It is never too early to get started investing in a commercial real estate fund. Many funds have quite low minimum investment amounts to get started and you can continually add to your portfolio as well as leave the income to be reinvested.

With some commercial real estate funds you can use funds from a self-directed IRA which you funded by rolling over a 401k when you changed employment. This gives you the added bonus of tax-free earning potential. This is not offered with all funds, so be sure you ask about it if you are looking for a place to put a retirement account.

The biggest mistakes made in investing are usually done out of desperation when too few years remain to make safer investment options provide enough return. If you start early with commercial real estate fund investing, you’ll be able to do everything you dream of doing, all while your portfolio keeps growing to leave behind a legacy for your children, grandchildren and perhaps even great-grandchildren.

Even if you are approaching retirement, you can still improve your position by getting involved now. Although there have been some bumps in the road, regardless when you begin your journey, you can achieve at least an infusion into your retirement nest egg.

Other Options

Compound interest works best at higher returns. While you could invest instead into the stock market, consider that the S&P 500 Index had a modest 8.6% return over the past 20 years. That beats the shoebox and even the 2% CD rate, but you could do so much better with commercial real estate funds.

Conclusion

You are one person and how much you can earn through employment is limited to a set number of hours of effort. What you do with those earnings, however, can make a huge impact on how you get to enjoy your golden years. If your idea of retirement is golfing every day, taking cruises to exotic vacation spots and enjoying all life has to offer, you must start now with making compound interest work for you, and the best option to doing that is by investing in commercial real estate funds.

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