“The most powerful force in the universe is compound interest.”
The Magic of Compounding
Compound interest refers to reinvesting the money you earned from your initial investment. The interest you earn each year is added to your original balance, which you then continue to earn interest on. Your balance grows at an increasing rate.
Calculator: How fast can your money grow?
The following example will show you exactly what kind of effect compound interest can have on your money:
Would you rather have $10,000 every day for a month or a penny that doubles every day for a month?
Most people will laugh at the idea of taking the doubling penny, but it turns out that this option earns you more than 15 times what the $10,000 does.
Podcast: Compound Interest
Still don’t believe in the magic of compounding?
$10,000 a Day for 31 days vs. A Penny that Doubles Every Day for 31 days
|Day||Penny Doubling Everyday||$10,000 Every Day|
If you take the doubling penny, you will end up with $10,737,418 vs. $310,000 at the end of 31 days collecting $10,000 per day. Now, that’s the magic of compounding interest.
- According to Warren Buffett, founder of Berkshire Hathaway, “My wealth has come from a combination of living in America, some lucky genes, and compound interest.”