Any objective/goal can never be achieved smoothly without a plan. So our first step is to make a plan. But before anything else let us first define Plan.
Plan is typically any procedure used to achieve an objective. It is a set of intended actions, through which one expects to achieve a goal.
Now here's our set of intended actions (Plan).
Plan Outline :
Investment Vehicle = Forex Trading
Goal = $1,000,000,000.00
Principal = $10,000.00
Strategy = The Power of Compounding
Time Frame = 19.6 Years
Target Profit/Month = 5%
Forex Risk Exposure :
1.) Low Risk
a. Leverage = 1:1 (0.1 lot/$10k)
b. Target Pip/Day = 25 Pips
2.) Medium Risk
a. Leverage = 1:2 (0.2 lot/$10k)
b. Target Pip/Day = 12.5 Pips
3.) High Risk
a. Leverage = 1:3 (0.3 lot/$10k)
b. Target Pip/Day = 8.3 Pips
"Above Plan is also applicable to turn $1,000.00 into $1M in 11.7 years or turn $10k to $10M in 11.8 years"
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Compounding Formula :
The compound interest formula calculates the value of a compound interest investment after 'n' interest periods.
where:
'A' = Amount after 'n' interest periods.
'P' = Principal, the amount invested at the start.
'i' = the interest rate applying to each period.
'n' = the number of interest periods
Using this formula to duplicate the results from the example above:
P = $1000, i = 0.1, n = 2,
so: A = 1000(1 + 0.1)2 = 1000 × 1.21 = $1210
The interest rate is per interest period. Often, interest rates are given for a whole year, (per annum). A yearly interest rate must be divided by the number of payments per year.
For example, if the interest rate on an investment is 12% per annum, and interest is payed monthly, then the value of 'i' to use in the formula is 12%/12 = 1% = 0.01
By rearranging the compound interest formula, we can use it to find unknown 'P', 'i' and 'n' values, like this:
(b) find the principal invested at the start:
For example: What principal does Rey need to invest at 15% p.a. compounding monthly so that he ends up with $10000 at the end of five years?
(c) find the interest rate per period:
For example: Digiguy has $5000 to invest. What monthly interest rate would cause his investment to increase to $7000 after 5 years?
(d) find the number of interest periods required to achieve your goal:
For example: Santino needs $40,000 for a car. He decides to invest $15,000 at 6% p.a. compound interest, compounding monthly. How long will he have to wait until the $15,000 grows to $40,000?
