Mario Gabelli discusses what compounding is on Millennial Mondays.
Mario's Millennial Mondays: What Is Compounding?
Comments you think your life would change if you stopped buying a cup of coffee every day or a water bottle or a pack of gum. Let's do the map let's say a cup of coffee cost three dollars and you buy one every day. That's one thousand ninety five dollars every year. If you invested that money on average by the end of the year it would be worth around 1204 dollars. Not that exciting right. Well imagine you did this every year and reinvested the 1204 last year along with the different from this year. By the end of the year that's now two thousand four hundred eleven dollars. Do this over and over again by retirement you'll be a millionaire. This is called compounding compounding is when higher returns are generated on reinvested earnings. How do we do this you ask securities securities or investments that allow you to own things without physically holding on to them. We'll start with two types of secured equity and fixed income investments otherwise known as sovereign bonds and equity investment as a stock. When you buy a stock you buy part of a company so that that company has money to invest. This way you'll never get lonely. Got it. Buying some company haha. This means if that company does well so do you. Here's an example. You buy a share of a tech company let's call it or the stock is worth five dollars a share when you buy it. But in a year the company is grown and now one share sells for ten dollars. Wow look at you go.
You sell your stake and make a five dollar profit. Not so scary anymore right now. We'll talk about fixed income investments people use a lot of different names for this type of security. Fixed income debt bonds don't get confused they all mean the same thing a fixed income investment is essentially just an IOU. You got your money back after a fixed period of time with an added bonus. The beauty of investing in a secured is that on average your money will grow faster than it will sitting in a bank. Plus like we saw with your cup of coffee you can invest that out of cash and make even more investing is a great way to help plan your future save up for big purchases. Or just have cash for that rainy day. Thanks for watching. Let us know what you're interested in hearing about in the comments section below.