I’ve heard more than a few coaches stress the importance of “practicing the fundamentals” in sports. Growing up, I would hear “even Magic Johnson practices dribbling and passing every day”. The same thing applies here, even if you’ve heard it before, let’s take another look at THE POWER of Compound Interest. Even with all that fanfare for the topic, I’ve been guilty of neglecting to properly cover when discussing financial literacy. I’ve found I take for granted that I was taught the power behind compound interest at a young age. I was fortunate that I had classes that taught me these lessons as early as middle school, but not everybody is so fortunate.
- In investing, compounding is simply the concept of earning a return on your previous returns.
- It’s so effective because not only does it teach you discipline and good habits, but it prevents you from making stupid mistakes in the stock market.
- We created his gifting page with Greatest Gift and shared it on the birthday evite.
- For example, let’s say you have an interest rate of 6%.
FYI – Robbins’ exact line was “Compound interest is such a powerful tool that Albert Einstein once called it the most important invention in all of human history.” Over the years, I’ve read Einstein quoted as saying that ‘compound interest was one of man’s greatest inventions’, or other variations on this theme. In Tony Robbins recent tome (600 pages to write what would fit in a short magazine article) he offered this Einstein line. I’d like to know if it was made up or if Einstein ever said anything close to this. From abacus to iPhones, learn how calculators developed over time.
Nobody has that kind of money to save for their kids. But what if we saved just a little bit for them. It saddens me to see such disregard for the future. Everyday, we have people who live in a mindset of scarcity instead of abundance.
What do the wealthiest and wisest investors have in common? They are always smiling, because they are making money every second of the day. The work you need to do in the beginning is often very painful and tiring.
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He said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” Over time, this process can turn a small amount of money into a big amount. Einstein was a remarkable physicist and mathematician. His work on the theory of relativity revolutionized our understanding of time, space, and gravity.
This article was reviewed by Pravin Mahajan before it was published as part of RateCity’s Fact Check process. As the numbers show, if you have the discipline to make regular deposits and the patience not to touch your money, you can turn a little into a lot. Of course, if you added more than $10 per week, your financial position would become even stronger.
One reply on “Compound Interest Is Man’s Greatest Invention”
A small piece of snow becomes an avalanche by first becoming a snowball. At first, the amount of force and energy to create a snowball must be great. Snow needs to be continually added, with an almost intense effort. Compounding interest doesn’t care about your race, gender, or age. Compounding interest affects everyone the same, because it depends on time. It showed me that something this fundamentally important bears repeating.
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References continued to proliferate, but QI will stop the presentation here because the citations above provide a reasonable sample. The third friend sharpened his pencil and started to figure on a large piece of paper. Compound interest is the most powerful force in the universe. There’s another financial concept often linked to Einstein – the rule of 72. Einstein knew this ‘8th wonder’ was something we can all use to help us build wealth.
Einstein’s Compound Interest Quote Explained
Imagine that instead of $100, you saved $10,000 and earned 10% for 30 years. $10,000 for 30 years at 10% per years turns into $174,494.02. I had taken it for granted that this room full of grown-ups understood what it means when we say, “compound interest is the most powerful force in the universe”. Even if they had been taught before, they really appreciated being taught again. Sometimes a comment is attributed to a famous individual to increase the prestige and believability of the comment.
Nobody makes a real fortune overnight, and nobody goes broke in one night either. The exceptions to the rule regress back to where they should be over time. That’s why lottery winners oftentimes end up broke years later. It’s so effective because not only does it teach you discipline and good habits, but it prevents you from making stupid mistakes in the stock market. Because as time goes on, you will keep collecting interest. As time goes on, you can reinvest that interest and get more interest.
While young people may not have much money to invest with, time is on their side and they are in the best position to take advantage of compound interest to accumulate wealth. See how much daily interest/earnings you might receive on your investment over a fixed number of days, months and years. You may find this useful for day trading or trading bitcoin or other cryptocurrencies. Andrew has always believed that average investors have so much potential to build wealth, through the power of patience, a long-term mindset, and compound interest. The kind of time that young people have today to compound their investments makes old hedge fund cats salivate. That’s why they are looking for the fountain of wealth.
After a year, if you don’t pay anything back, you’ll owe $180 in interest, making your total debt $1180. Now, what if this interest starts to earn its own extra money? The Ascent is a Motley Fool service that rates and reviews essential products for your accounting for artists everyday money matters. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market.