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Compounding interest – the most important concept for your financials

Compounding interest, compounding interest, compounding interest. Say it out loud (or in your head one more time) so you remember it. It is the most essential term to understand in order to take control of your financials. Compounding interest is what puts some people in financial misery and makes other financially independent. Get an understanding of compounding interest early in your life, and be in control!

Compounding interest is in short interest on interest.

An example of this is that the first year $1 is invested with an 10% interest it will yield 10 cents, so that you have $1.10. The second year this investment however has 10 cents more to earn interest than in the first year. The investment will as such yield 11 cents instead of 10 cents in year two, so that you have $1.21 after the second year.

Guide: Sådan kommer du i gang med at investere (Danish)

——————– THIS POST IS IN DANISH AS IT ONLY RELATES TO DANES ——————–

Når man skal i gang med at investere, kan det være svært at vide, hvor man skal starte, da man bliver præsenteret for en ny verden, man intet kender til. Med baggrund i vores egne erfaringer har vi lavet denne guide, der trin for trin fortæller, hvordan man nemt kan komme i gang.

Guiden indeholder svar på følgende:

  • Hvor skal jeg oprette et depot?
  • Hvad skal jeg investere i?
  • Hvor meget skal jeg investere for?
  • Hvordan handler jeg?
  • Hvad skal jeg gøre efter jeg har handlet?

Hvor skal jeg oprette et depot?
Hvis du vil investere dine penge, er det første, du skal gøre, at oprette et depot. Et depot er et virtuelt sted, hvor dine værdipapirer bliver opbevaret, efter du har købt dem. Har du ikke et depot, kan du altså ikke handle værdipapirer. Et oplagt sted at oprette et depot er hos en af de store danske banker, der tilbyder en investeringsservice, eller hos Nordnet som har specialiseret sig i private investorer.

Why invest your money?

If you have any savings that you do not need in the near future, you can consider investing it in something that gives you a return. At the moment, interest rates in Denmark are so low that at most banks you have a deposit rate of 0%, which means you do not get any interest income on your savings. In the short run it is okay, but if you have a long-term perspective with your savings, you should definitely consider whether it makes sense for you to invest the money, as their value over time will decrease due to inflation.