Sunday, September 22, 2013

Compound Interest is the eighth wonder - Albert Einstein

No wonder the world's most intelligent person, Albert Einstein, realized the power of compounding much before than anyone else. He once said that "Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it". Your saved money earns money and your earned money also earns money thereby making your wealth grow at exponential rate.

Consider for example a dollar saved everyday and invested in asset class that generate just 8% per annum could grow to more than 0.2 million dollar in 50 years and to a whopping $10 million in 100 years. Without any compounding this would grow to just $18,250 in 50 years while $36,500 in 100 years.

The magic of compounding work best over longer periods of time. And if you want more time to work for you to compound wealth, you have to start to invest very early. With compounding logic in mind one can plan for all the major phases of life such as marriage, home purchase, children's education, retirement etc and set aside suitable corpus accordingly. If you know Microsoft Excel then you can perform your calculations very easily using inbuilt formulas or else the following calculators can be also be used. 

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