uhnwi

Ultra High Net Worth Individuals exploit the idea behind Compounding Wealth. Compounding wealth is a term I use for an investment that provides a return that, given time, multiplies greatly. It is the ability of reinvested returns on an investment to generate their own returns.

As the chart below shows, if you start out with an income generating investment of $1,000,000 and an annual return of 10% then at the end of seven years, with compounding, your investment would be worth $1,948,717 or nearly DOUBLE.

10% is a good return but with more risk the return could be even higher.

Although Compounding is associated with interest paid on capital over a period of time it can also apply to returns on ANY investment as long as the principal and the return are not touched and carried over to the next investment period.

As an example, a property investment of $1m could grow to $1.1m in a year (less charges). The property could then be sold and the whole $1.1m invested in another property related investment (or something else). In year 2, at the same growth rate, the investment would grow to $1.21m.

Using compounding wealth means you can become a lot richer a lot quicker.