Have you ever wondered at what makes an avalanche so powerful? A force so massive actually starts from a very small place. Before an avalanche can smash trees and break legs, it needed to become a snowball first, and a piece of snow before that. Time is truly a wonderful thing, and it’s something we all share in common.

• But if the account paid a 2 percent interest rate, June would now have $42.55 and could buy a moderately priced dinner to celebrate her 100th birthday.
• 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.
• We received 12 gifts that will be going to his college fund and savings.Love this platform.
• On your death, you are, for tax purposes, deemed to have disposed of your investments.

Let’s say you invest $500 a month in a brokerage account over a 20-year period. All told, you’re sinking $120,000 into your account, which is a lot of money. But if your investments during that time generate an average annual 8% return, net income explained which is below the stock market’s average, you’ll end up with about $275,000. And compounding is what helps make that possible. Let’s say that you are able to squeak out a higher rate of return, because of your diligence and insight.

Einstein’s Compound Interest Quote Explained

Strategies for teaching financial literacy. If you want to see the math in a spreadsheet, you can view it here. If you want to see the math laid out on a web-page, you can view it here. 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?

Your guess at what it’s going to do next is as good as the next guy’s. Until you find someone that can predict the future, you’re just going to have to face the fact that you won’t be able to time the market. The work you need to do in the beginning is often very painful and tiring. But once your wealth snowball is built, then your wealth naturally attracts more wealth.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. It saddens me to see such disregard for the future. Everyday, we have people who live in a mindset of scarcity instead of abundance.

Compounding interest utilizes momentum.

The rule is a valuable tool for understanding compound interest. Einstein knew this ‘8th wonder’ was something we can all use to help us build wealth. Seeing your money grow thanks to compound interest can be just as amazing as seeing the Great Wall of China or the Colosseum. You might have heard about the seven wonders of the world. These are amazing places that really wow people.

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And those 30 years were your working years when you had the choice of putting something aside for retirement. Perhaps it prevents you from signing up for a high interest credit card. Imagine that instead of $100, you saved $10,000 and earned 10% for 30 years.

A Guide for your Financial Parenting Journey

Compounding interest is best pursued when you are dollar cost averaging. There’s actually a name for this strategy. 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. A growth investor with a keen interest in reading and sharing knowledge. Compound Interest is a tough topic to wrap your head around.

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Hold onto your hat, June, because a 20 percent annualized return would have turned the $6.11 into $351.4 million. That’s enough to buy a small island for the birthday celebration, or just about anything else she or her family could want. Investor 2 saves $1,00 per year but doesn’t start until age 31 and NEVER STOPS. Even with all that fanfare for the topic, I’ve been guilty of neglecting to properly cover it when discussing financial literacy. I’ve found I take for granted that I was taught the power behind compound interest at a young age.

However, I did all the work for you to help you understand and make this simple for you. I collected some quotes from the books I’ve read on investing about compound interest. Now if you are like most people, at first you might jump on the million dollar deal. But if you break out your calculator and double one penny for 30 days you will be amazed that on day 30 your penny would be worth over $5,000,000.