Well, while you’re paying off this debt you’re missing out on extremely valuable time investing in the market. When we use the term “compound interest” in the investing world, we’re not really even usually talking about interest but rather the gains/returns that we might receive from our investments. On the other hand, compound interest really does apply to when we’re paying it because it’s usually because we’re working to pay off some massive debt.

In personal finance articles I frequently find quotes injected to attribute some further relevance to one’s position. All investing involves risk including loss of principal. No strategy assures success or protects against loss. Look, here are 10 fantastic quotes from influential people and what they have to say about compounding interest. It saddens me to see such disregard for the future.

Einstein didn’t just say that it was pretty cool or good in some way; he said it was the most powerful force. Old Grandpa Rockerfeller the multi-millionaire who preached thrift said something I never forgot. He said, “The 8th wonder of the world is compound interest.” Unfortunately very few people understand the magic of compound interest. Social security is squarely based on what has been called the eighth wonder of the world—compound interest. A growing nation is the greatest Ponzi game ever contrived.

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If we need to consider more than one year, n will be equal to m multiplied by the number of years we consider. This is important because you need to be able to compare apples with apples. The only way to do this is if we can compare the annual amount of interest that will be earned given the amount of times interest is compounded.

• His work on the theory of relativity revolutionized our understanding of time, space, and gravity.
• In personal finance articles I frequently find quotes injected to attribute some further relevance to one’s position.
• You won’t hear this from stock brokers or pundits who want you to trade and incur not only commissions but taxes.
• Over time, this process can turn a small amount of money into a big amount.
• One of my favorite compound interest examples that I like to use is the power of making small changes in your everyday life and then sitting back and watching the money compound like crazy.
• Clinton and Trump both factor in the court file, partly because Giuffre was questioned by Maxwell’s lawyers about inaccuracies in newspaper stories about her time with Epstein.

Thus, at the end of 10 years, you will have to repay a total of R8,235.05 (the principal of R5,000 plus the interest of R3,235.05). Still, to us finance types, compound interest is still pretty darn powerful and noteworthy. A recent Huffington Post story ran about a woman celebrating her 98th year as a customer of a local bank. June Greg’s father deposited $6.11 into her account 98 years ago, when she was only two years old. My colleague Conrad deAenlle also wrote about this money in the bank. 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.

Einstein and the Rule of 72

Perhaps it prevents you from signing up for a high interest credit card. Investor 1 saves $1,000 per year from age 18–30 — then STOPS SAVING FOREVER. It showed me that something this fundamentally important the difference between the general ledger and trial balance bears repeating. 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”.

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Now if Dad had invested it in the stock market and averaged 10 percent annually, June would be pocketing some real money – $69,586 – and could do a whole lot better than a dinner. Maybe take the family on a nice first class vacation, for example. Let’s use the same payment scheme as our mortgage example. Let’s even use the same interest rate for growth. If you were to make payments of $1,073.64 per month for 30 years into some interest bearing account, earning a mere 5%, do you have any idea what that account would be worth? (Neither did I, but I have a HP12C Financial Calculator from 1989.)  Those payments would have grown to $902,066.

If you invest the same $1000 dollars in your superannuation at a 10% return and leave it for 30 years your compounded total is $17,449. When you buy stocks in a brokerage account and they gain value over time, you’re not getting compound interest. Rather, you’re getting the option to take advantage of compounded returns, since stocks don’t pay interest like bonds and savings accounts do. But all told, compounding could really work to your benefit, especially if you give yourself a long investment window. “An investor who started with a $100,000 portfolio in 1970, would now be receiving total annual dividend income of $35,000. That’s more than one third of their original investment, every year.” Most people would go for the $10 million option as it is hard to imagine that $1 doubling 30 times will become $1.07 billion!

Everyday, we have people who live in a mindset of scarcity instead of abundance. People who are destroyers instead of creators. This isn’t the world I want my daughter to grow up in. It’s the habits that you live with which define your wealth.

Did Einstein ever remark on compound interest?

In the long run, it is the compounding effect of reinvesting dividends that really makes you rich. Say you invested £100 (Dh590.82) in the UK stock market way back in 1899. If you spent all your dividends, it would be worth £22,239 in today’s money, according to the long-term Barclays Equity Gilt study. But if you had reinvested them, it would be worth a massive £1.63 million. In addition, you’re going to have a MASSIVE opportunity cost. On average, the stock market goes up 10% each year as I have mentioned but I like to use that 8% number just to be safe.

Compounding interest is the great equalizer.

Suppose you borrow $1000 on a credit card with an 18% annual interest rate. To put it another way, over five years, you could earn $403 by reinvesting your interest compared to $350 if you pocketed the dividends each year. Imagine you invested $1,000 in a fund that provided a return of seven per cent per annum (compounded monthly). Maurie Backman is a personal finance writer covering topics ranging from Social Security to credit cards to mortgages. She also has an editing background and has hosted personal finance podcasts.

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And this is where Albert Einstein comes into play. According to Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” At first this quote might seem like a bit of an exaggeration but the math behind it shows that it is not. The rule of 72 is a quick, easy way to calculate how long it will take for an investment to double based on the interest rate. Take the previous example – after five years, you’d not only be earning interest on your original $1,000 investment, you’d also be earning interest on your $403 of interest. The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.