Hello, this is week eight in my ten week series on how to
trade options successfully. This week we are going to
discuss saving.
Saving is a very important part of any successful financial
strategy; if you spend your gains as soon as you have them
you will never reach true wealth. It is only by the miracle
of compound interest that your gains will truly turn into a
fortune.
Compound interest is the process whereby annual returns are
added to the original investment and reinvested, rather
than being spent or taken out, thereby creating a larger
amount to invest again, as this process is repeated the
compounding exponentially increases the returns over the
lifetime of the investment. For example if you invest
$10,000 a 20% return increases your portfolio to $12,000. A
20% return on that increases your portfolio to $14,400, 20%
on that is $17,280, 20% on that is $20,736 and 20% on that
is $24,883 which is a total return of $14,883.
Now assume as soon as you made the original 20% return you
took it out and spent it, your next 20% return would only
be the same $2000 on your $10,000 investment. If you kept
doing this 5 times your total return would only be $10,000,
$4,883 or almost 50% LESS than if you left your money in
your account. The longer you leave your money in your
account the more pronounced your returns will be and the
greater the effects of compounding will be.
Einstein once said "Compound interest is the 8th wonder of
the world". When applied to options trading we can replace
the word "interest" with "return on investment". That means
if you are winning and have a good return on your
investment don't take out the profits in your account to
spend on a new boat, car or house. Re-invest your profits
and if you are doing everything correctly the miracle of
compounding returns will exponentially increase the size of
your portfolio.
That's it, a short article this week. Next week we have a
lot to discuss when we talk about money management.
US Government required disclaimer: Options involve risk and
are not suitable for all investors. Prior to buying or
selling an option, a person must receive a copy of the
Characteristics and Risks of Standardized Options. Copies
of this document may be obtained from your broker, from any
exchange on which options are traded or by contacting The
Options Clearing Corporation, One North Wacker Dr., Suite
500 Chicago, IL 60606 (1-800-678-4667).
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Roger Cox was born in New Zealand and has lived in Los
Angeles for seven years. He was President of a freight
company at LAX before setting up his own consulting firm.
Roger has successfully traded stock options for over 4
years and teaches other people how to successfully trade at
http://www.prosperitywithoptions.com
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