Let's look at an example:
Three people with the same starting capital of $1,000 and a fixed interest rate of 10% daily forever plan.
The only difference is how each one used compounding: One doesn't use compounding at all, one uses 50% compounding and the last one compounds 100% for example druing 1 month.
Person A: no compounding
- Investment: $1,000
- Daily payout: $1,000 x 10% = $100
- Profit after one day: 1 x $100 = $100
- Profit after one month: 30 x $100 = $3,000
- Total profit: $3,000
Person B: 50% compounding
- Investment: $1,000
- Daily payout: $1,000 x 10% = $100
- Profit after one day: 1 x $100 = $100
First compounding: The $100 profit are reinvested, bringing the total investment for the second day up to $1,050
- Starting investment 2nd day: $1,050
- Daily payout: $1,050 x 10% = $105
- Profit during 2nd day: 1 x $105 = $105
Imagine this pattern repeating 30 more times for the rest of the month:
Let's look at the math to figure out the final amount:
- Daily Growth: 10% => 1.05
- Number of days in a month: 30
- Monthly Growth: 1.05 to the power of 30 = 1.05 ^ 30 = 4.32 = 432%
- Total Profit: 432% x $1,000 = $4,320
Person C: 100% compounding
- Investment: $1,000
- Daily payout: $1,000 x 10% = $100
- Profit after one day: 1 x $100 = $100
First compounding: The $100 profit are reinvested, bringing the total investment for the second day up to $1,100
- Starting investment 2nd day: $1,100
- Daily payout: $1,100 x 10% = $110
- Profit during 2nd day: 1 x $110 = $110
Let's look at the math to figure out the final amount:
- Daily Growth: 10% => 1.10
- Number of days in a month: 30
- Monthly Growth: 1.10 to the power of 30 = 1.10 ^ 30 = 17.45 = 1745%
- Total Profit: 1745% x $1,000 = $17,450
As you can clearly see, compounding makes a
HUGE difference! Even with 50% compounding your profits can be more much higher as investing without compounding. Daily compounding is another step forward, bringing you more than 10 times to return!