Many people preach the advantages of compound interest, but in fact, few people suggest the risk of compound interest, because the concept of compound interest can indeed be profitable, but in fact, it is actually a huge trap for most novice investors.
Is compound interest growth easy to achieve? Likening your profits to snowballs, are your snowballs getting bigger and smaller? In fact, few people can really snowball bigger and bigger like Buffett, and most investors will eventually stagnate or snowball smaller and smaller. It is true that investing can make a lot of money for some people, but for most people, making money by investing is actually harder than making money by working.
There are many novice investors, who think that investing is easy to make money, but in fact, they are misguided. Those who make money from investing are only a small percentage, because there are very, very many people who do it, and there are always some who will be more successful, or some who are more lucky, and in the end, everyone sees the cases of these successful people, but those who fail in investing make up the majority of the market. Some financial experts, they will say in their articles, often giving examples of annualised returns of 10% and then they will say that after decades of steady growth, the amount invested will return to the investor several times over, when, in fact, it is all false.
The return on your investment is directly proportional to your risk or volatility, and if you don't want to take any investment risk, your return on investment will be very, very low. Because even if you buy a government bond, for example, which is not necessarily completely risk-free because some countries will eventually go bankrupt, you can achieve this steadily growing compound interest if you hold shares in good companies for a long time. But if you expect the movement in his net worth, like in bonds, to be very low volatility, this is certainly not possible, so you have to be able to tolerate this relatively high volatility in net worth if you want to achieve higher returns in equity investments.
If when investing, someone tells to choose compound interest, in fact, this is all to compound interest to publicize, this is to attract more investors into the capital plate, so we must keep these points in mind when investing：
(1) The first point, compound interest does have great power, but this power belongs to excellent investors, but for the average novice, it is best not to believe it, because this is a huge trap
(2) The second point, for most people, investment to make money is actually more difficult than working to make money, if you want to achieve compound interest growth, you need to invest a lot of time to do a variety of learning and research, find excellent companies, long-term holding of some companies' stocks.
When we choose fund investment, we must learn relevant knowledge, do not believe in the convenient way to earn money advertised by others to avoid these traps.
