Compound interest: How reinvestments help you reach your investment goal faster
Legendary investor Warren Buffett calls compound interest “the eighth wonder of the world” and says that those who understand it can use it to their advantage. Compound interest plays a crucial role in how quickly your invested capital grows and how effectively you achieve your financial goals.
(This article is NOT investment advice.)
The difference between ordinary investment and reinvestment of returns is crucial. If an investor regularly withdraws his returns and spends them, his capital grows more slowly. On the contrary, if he continues to reinvest the proceeds, his money works on itself and the portfolio appreciates faster and faster. How big can the difference be? Let's look at the specific numbers.
What impact does reinvestment have on investment growth?
When investing 1,200,000 CZK and a regular appreciation of 9% p.a., after 20 years, an investor who chooses returns regularly would have a portfolio value 2,275,500 CZK. In contrast, an investor who reinvests his income achieves value £3,339,434. The difference is more than CZK 1 million — while the initial investment was the same.
Check out a chart of how portfolios evolve over time:
The longer the investment horizon, the more pronounced the compound interest effect. After five years, the difference between fixed investment and reinvestment of income is only in the order of tens of thousands of crowns, but after 15-20 years it is already hundreds of thousands to millions.
Compound interest: Why use it?
enchantment compound interest lies in the fact that not only your original investment, but every reinvested return begins to earn additional returns. This effect works best when the investor minimizes manual intervention and lets the investments work on themselves. That's exactly what it serves for Autoinvestthat automatically reinvests proceeds into other projects, saving investors both time and worry.
Let's take a look at a concrete example of investor Peter. He invested CZK 1,200,000 and decided to invest for 20 years with an annual return of 9%. If he collected the proceeds regularly, his total profit would be CZK 1,075,500. However, if he reinvested the proceeds, his return would rise to CZK 2,139,434, or almost double that.
Do you want your capital to grow faster? Turn on Autoinvest and reinvest your returns automatically.
Reinvest income and reach your goals faster
Reinvesting the proceeds is key to achieving financial goals faster. Whether you're planning to buy your own home, fund your children's studies, or want to secure a quieter retirement, compound interest will help you achieve these goals faster and more efficiently.
The sooner you start, the more money you can get in the future. Don't waste time investing manually — switch on Autoinvest and let compound interest work for you.
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