The 8th Wonder of the World

Albert Einstein famously called compound interest "the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it."

What is Compound Interest?

Unlike Simple Interest, which is calculated only on the principal amount, Compound Interest is calculated on the principal plus the accumulated interest. It's "interest on interest."

The Snowball Effect

Imagine rolling a snowball down a hill. At first, it's small. But as it rolls, it picks up more snow. The larger it gets, the more snow it picks up with each revolution. That is compound interest.

The Rule of 72

A quick way to estimate how long it takes to double your money: Divide 72 by your annual interest rate.

• 8% return: 72 / 8 = 9 years to double.
• 12% return: 72 / 12 = 6 years to double.

Start Early

The biggest factor in compound interest is TIME.

• Person A: Invests $500/month from age 25 to 35, then stops.
• Person B: Invests $500/month from age 35 to 65.

Surprisingly, Person A often ends up with more money, simply because their money had 30 more years to grow.

Takeaway: Don't wait for a "better time" to invest. The best time was yesterday. The second best time is today.