Next, an investment model is proposed in which with an Initial Balance of €1000, and a small monthly contribution of €100, a great growth in the final balance can be achieved. With a compound interest of 3.5% and reinvesting what is earned month after month, in a period of 10 years a final balance of €332,928.18 is achieved. It is important to mention that as time passes, compound interest plays an increasingly important role in the growth of the balance sheet, which means that the investment has the potential for exponential growth. In addition, this monthly reinvestment strategy allows you to take full advantage of compound interest, since an increasing amount is being invested each month due to balance growth. However, it is important to note that this investment model requires a long-term commitment and a solid financial strategy to achieve the desired results.
| YEAR | INITIAL BALANCE | ACCRUED INTEREST | ACCRUED INTEREST | FINAL BALANCE SHEET |
|---|---|---|---|---|
| 1 | €1,000.00 | 978.02 € | 978.02 € | 3,778.02 € |
| 2 | €3,778.02 | 2,397.78 € | 3,375.81 € | 7,975.81 € |
| 3 | 7,975.81 € | 4,543.14 € | 7,918.95 € | 14,318.95 € |
| 4 | € 14,318.95 | 7,784.92 € | 15,703.87 € | 23,903.87 € |
| 5 | € 23,903.87 | 12,683.47 € | 28,387.34 € | 38,387.34 € |
| 6 | € 38,387.34 | 20,085.52 € | 48,472.86 € | 60,272.86 € |
| 7 | € 60,272.86 | 31,270.52 € | 79,743.38 € | 93,343.38 € |
| 8 | € 93,343.38 | 48,171.83 € | 127,915.21 € | 143,315.21 € |
| 9 | € 143,315.21 | 73,710.87 € | 201,626.07 € | 218,826.07 € |
| 10 | € 218,826.07 |
112,302.10 € |
313,928.18 € |
€332,928.18 |
An investment model is proposed in which an initial capital of 10,000 euros is available and no further contributions are made. This model focuses on a low risk investment profile, in which a stable and predictable monthly profit is sought, instead of taking higher risks in search of higher profits. With this approach, a monthly rate of return of 1.5% is expected.
In addition, it is important to note that compound interest also plays an important role in this model, since the interest generated month by month accumulates and contributes to the growth of the total principal. It is advisable to consider a long-term investment period, to take full advantage of the growth potential of compound interest.
| YEAR | INITIAL BALANCE | ACCRUED INTEREST | ACCRUED INTEREST | FINAL BALANCE SHEET |
|---|---|---|---|---|
| 1 | €10,000.00 | 1,956.18 € | 1,956.18 € | 11,956.18 € |
| 2 | 11,956.18 € | 2,338.85 € | 4,295.03 € | 14,295.03 € |
| 3 | 14,295.03 € | 2,796.37 € | 7,091.40 € | 17,091.40 € |
| 4 | 17,091.40 € | 3,343.39 € | 10,434.78 € | 20,434.78 € |
| 5 | 20,434.78 € | 3,997.41 € | 14,432.20 € | 24,432.20 € |
| 6 | 24,432.20 € | 4,779.38 € | 19,211.58 € | 29,211.58 € |
| 7 | 29,211.58 € | 5,714.32 € | 24,925.90 € | 34,925.90 € |
| 8 | 34,925.90 € | 6,832.14 € | 31,758.04 € | 41,758.04 € |
| 9 | 41,758.04 € | 8,168.63 € | 39,926.67 € | 49,926.67 € |
| 10 | € 49,926.67 | €9,766.56 | € 49,693.23 | €59,693.23 |
The investment model below is the one that many traders have in mind when starting to invest. This model is based on an initial balance of only 100 euros and a return of 50% per month. At first glance, it may seem attractive to think of getting such a high return in such a short time, but it is important to keep in mind that these types of models are extremely unrealistic.
Judge for yourself:
| YEAR | INITIAL BALANCE | ACCRUED INTEREST | ACCRUED INTEREST | FINAL BALANCE SHEET |
|---|---|---|---|---|
| 1 | 100.00 | 12,874.63 | 12,874.63 | 12,974.63 |
| 2 | 12,974.63 | 1,670,436.59 | 1,683,311.22 | 1,683,411.22 |
| 3 | 1,683,411.22 | 216,733,029.69 | 218,416,340.91 | 218,416,440.91 |
| 4 | 218,416,440.91 | 28,120,316,901.94 | 28,338,733,242.85 | 28,338,733,342.85 |
| 5 | 28,338,733,342.85 | 3,648,508,138,350.46 | 3,676,846,871,593.30 | 3,676,846,871,693.30 |
| 6 | 3,676,846,871,693.30 | 473,380,569,715,113.50 | 477,057,416,586,706.80 | 477,057,416,586,806.80 |
Due to space issues, rows had to be eliminated, since the final balance of the tenth year was: 135,192,029,178,808,270,000,000.00 euros (thirteen quintillion)
CONCLUSION – After seeing these three investment models, we can conclude that one of the most interesting options is to make small monthly contributions to increase our balance and obtain more attractive long-term returns. Compound interest plays an important role in this model, since the interest generated month by month accumulates and contributes to the growth of the total principal. Therefore, it is important to have a long-term mindset when investing.
*Disclaimer – It is important to note that the investment models presented above are for educational purposes only and should not be construed as a promise or guarantee of earnings. Past results are not indicative of future results. It is important to make a careful assessment of individual financial needs and goals before making any investment decision. Also, it is important to understand that investing always carries some level of risk and there are no guarantees of profit.