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September 22, 2020

The secret of Warren Buffett: compound interest

It's one of Warren Buffett's showpieces: compound interest. The principle of return on return. We'll explain exactly how that works today. And we'll give you a mathematical example with one of our most popular bots. (English version can be found below.)

BOTS by RevenYOU: Compound Interest
BOTS by RevenYOU: Compound Interest

Start investing

When you start investing and you start to delve into the matter, you soon come across the name of Warren Buffett. Warren Buffett is an American businessman and investor with an estimated capital of 73 billion dollars. When asked about the secret behind the success of his investments, his answer is always: compound interest. The principle of return on return.

Compound Interest

Now that savings interest rates are close to 0%, and in some cases even negative, saving has become a lot less lucrative. Your money is no longer worth it. If you take inflation into account, your money even becomes worth less every year.

Compound interest is described by Warren Buffett as the only way to make your money worth more and more. How about that?

When you invest, you get a certain return. Over the past ten years, the average return on the AEX has been around 10%. So every year your money becomes worth 10% more. If you start with €100,- then after a year this will be €110,-. The second year your return is 10% over €110,- and your money is worth €121,-. And this goes on for years. So you always receive your return on your previous return. This principle is called compound interest. In other words, compound interest.

Investing for the long term

A second "secret" of Warren Buffett is the period he invests in. In his view, fast money does not exist. And that certainly doesn't go together with his rock-solid confidence in compound interest. Because the market fluctuates, you will always encounter decreases. Dips are called these. These dips are always there and it is important not to panic when your investments end up in a dip. Historically, the market has always recovered and has always been profitable over the long term.

Trade with BOTS

One of the big advantages of investing with the BOTS app is that the bots are less "bothered" by these dips. Because the bots are made based on machine learning, artificial intelligence and algorithms, they are able to bypass the dips. Or at least suffer less from them. Because they are automatic trading strategies, they may be ahead of any dips. That way, the bots get the best possible return for you.

BOTS and compound interest

And you can make that return work for you, just like Warren Buffett. In the BOTS app you'll find different bots, each with their own strategy and associated risk level. So you decide for yourself which bots you want to invest with. Or maybe you use multiple bots for this.

One of our most popular bots is The Power of Pi. A bot that derives its strategy from the use of the number pi. Since the start of the bot, the average return is just over 5%. The Power of Pi has a risk level of 8 (on a scale from 1 to 12).

So if you invest €1000,- with The Power of Pi it is worth €1050,- after one year. You will continue to invest this amount. After two years your money will be worth €1102,50. And so you will keep it that way for ten years. At the end of those ten years your €1000,- will be worth €1628,-.

If we had assumed an average return of 10% (just like the average return of the AEX over the past ten years) your €1000 would have become worth a lot more. After ten years, the counter then stands at €2593.

Start investing

So now you can invest like Warren Buffet. Not with billions at a time. But the principle of compound interest allows you to build up capital in the same way. And by investing with the BOTS app, you are in any case well equipped to avoid dips in the market as much as possible. And Warren Buffett didn't always have that advantage.

Investing is for everyone

Everyone should be able to invest. And now they can. With BOTS. Together we are going to make the world of investment fairer and more transparent. Are you interested, but your question hasn't been answered yet? Take a look at the FAQs on our site. Or contact us, we will be happy to explain it to you in person.

The BOTS app is now live

Download the BOTS app on your mobile phone today! For Android click here, for Apple click here.

There is no such thing as risk-free trading. It is possible to lose (part of) your stake.

The secret of Warren Buffett: coumpound interest

It is one of Warren Buffett's flagship principles: compound interest, or, in other words, return on return. Today we will explain to you how this works. Also, we will provide an example calculation using one of our most popular bots.

Starting to invest

When setting out on your investment endeavour and delving into the subject matter, you should soon run into the name Warren Buffett. Warren Buffett is an American businessman and investor whose estimated worth is 73 billion dollars. When asked about the secret behind his investment successes, his answer is invariably 'compound interest', the principle of return on return.

Compound interest

With the interest rate on savings being close to 0% and sometimes even negative, the profitability of saving has strongly decreased. Your money no longer increases in value; in fact, when factoring in inflation, your money decreases in value every year.

Warren Buffett proclaims compound interest to be the only way to continually increase the value of your money. How does this work?

When you make an investment, you will make a certain return. In the past ten years, the average return on the AEX index hovered around 10%. This means that your money's value will increase by 10% each year. So if you start out with €100, this will have become €110 after one year. The second year your return will be 10% on €110 and your money will be worth €121. And this can go on for years: you get return on the return that you have previously made. This principle is called compound interest.

Investing is a long-term process

Another 'secret' of Warren Buffett is the period over which his investments run. In his view there is no such thing as quick money, a principle that most certainly does not match his rock-solid confidence in compound interest. Because the market fluctuates, it is inevitable that there will be declines, which are generally called dips. These dips will happen at some point and it is important not to panic when your investments are suffering from a dip. Historically, the market has always recovered and has always been profitable in the long run.

Investing with BOTS

One of the major advantages of investing using the BOTS app is that the bots are not as much affected by these dips. Since the bots have been created based on machine learning, artificial intelligence, and algorithms, they are able to evade dips or at least mitigate their effects. Bots perform automated trading strategies, which is how they are able to see dips coming and avoid them. In doing so, the bots will get you the best possible return.

BOTS and compound interest

And just like Warren Buffett, you will be able to let the return work for you. In the BOTS app you will find several bots that each have their own strategy and corresponding risk tier. You can decide for yourself which bot you would like to use to invest money. You also have the option of using multiple bots.

One of our most popular bots is The Power of Pi, a bot whose strategy is based on the use of the number pi. Since the bot was launched, its average return has been slightly over 5%. The Power of Pi is in risk tier 8, on a scale from 1 to 12.

So if you invest €1,000 using The Power of Pi, it will be worth €1,050 after one year. If you keep investing this amount, it will be worth €1,102.50 after two years. If you keep it up for ten years, your €1,000 will have become worth €1,628 by that time.

If we were to calculate this using an average return of 10%, (like the AEX index has yielded over the past ten years) your €1,000 would have become worth that much more. To be precise, it would be worth €2,593 after ten years.

Starting to invest

To conclude, you are now able to invest just like Warren Buffett. Perhaps it won't be with billions of euros at the same time, but the principle of compound interest will help you build up capital in a similar way. And by using the BOTS app to invest, you are definitely well-equipped to avoid dips in the market as much as possible. And that is one advantage Warren Buffett didn't always have.

Trading is for everyone

Everyone should be able to invest. And now they can. With BOTS. Together, we are committed to making the world of investment fairer and more transparent. Interested, but your question hasn't been answered yet? Then please have a look at the FAQs on our site. Or contact us, we will be happy to explain it to you in person.

The BOTS app is now live

Download the BOTS app on your mobile phone today! For Android click here, for Apple click here.

There is no such thing as risk-free investment. It is possible to lose (part of) your stake.