The following quote is attributed to Albert Einstein: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
Understanding the power of compound interest is key to increasing your wealth. To represent graphically how compound interest works, take a piece of paper and assume that the horizontal or x-axis represents time, and it increases from left to right. Your wealth is represented by the vertical or y-axis, and it increases from the bottom to the top.
When your wealth compounds without stopping, the line that represent your wealth at any point in time continuously increases as you move from the left to the right in time. It increases in such a way that the increment in wealth between two consecutive time segments – let’s say between years 4 and 5 – is always larger than the increment between years 3 and 4.
When you put money (wealth) in a financial instrument that never loses money – more on that in a moment – there are several factors that affect the amount of wealth that you have at any point in time: 1) the amount of money that you put into that financial instrument, 2) the annual interest rate that the financial instrument is earning; the higher the interest rate, the more wealth you accumulate, 3) the amount of time that you leave your money in that financial instrument; the longer the time, the more wealth you have, and 4) the frequency with which your money compounds; the more frequent, the more wealth you have.
As you move in time from left to right, you always have to make sure that you stay on the compounding curve and never fall from it. How do you fall from it, you may ask?
Well, there are two ways you can fall from it. One is a voluntary action on your part, like when you withdraw money from your financial instrument to make a purchase. Your amount of wealth decreases by the amount withdrawn and it starts compounding again although starting at a lower level. The second type of fall is involuntary and it happens when the financial instrument that you are using depends on the stock market and the market suffers a loss. Again, your money decreases by the loss amount and it starts compounding again starting at a lower level.
Both situations explained above are extremely detrimental to the creation and growth of wealth and may have a devastating impact on your financial future when they happen immediately before a major life event like your retirement, or the beginning of college for your children. But, can you avoid these types of falls? Yes, you can; let me explain how.
If the financial instrument that you use is a Banking Policy and you need money for a major purchase, you simply take a policy loan from the insurance company using your cash value as collateral and not only you access money for your purchase, but your cash value remains in your policy continuously earning interest and dividends and you never fall from the compounding curve. As far as an involuntary fall, it doesn’t exist with a Banking Policy as it has nothing to do with the stock market. And the greatest gift of all: no more sleepless nights and a priceless peace of mind.
If you would like to learn how you can grow a substantial amount of cash that you have access to at any time without penalties, is unrelated to the stock market, and will generate income that is not included in your tax return, visit our website at http://dev.infinitebankingsimplified.com/blog/ or feel free to email us your questions at ContactUs@InfiniteBankingSimplified.com or call us toll-free at 1-844-443-8422.
Isis B. Palicio, LUTCF, MBA
Pedro A. Palicio, MBA, Ph.D.
Infinite Banking Concepts® Authorized Practitioners
We are experts in designing high cash value dividend-paying whole life policies.