Compound Interest is the Most Powerful Force in the Universe, My Take on This Miraculous Phenomenon of Numbers
In this blog post, I’ll explain why compound interest is the most powerful force in the universe. I see that compound interest is the most powerful force in the universe, and that when taken into its extreme, the numbers don’t lie, and they can add up to amounts that are so far and beyond, and that are so extreme, that they can really make your head spin. There’s a perfect example from Warren Buffett, a man worth $100 billion in a legendary investor, who talks about the power of compound interest, and how it wants forced a king to give away the entire kingdom. He talks about a wise Duke that made a deal with the king, and who said in order to repay me for slaying the dragon, and I’m paraphrasing I don’t think I’m getting is exactly right, but it captures the just of the metaphor, in order to repay me for my services, take a chessboard, put one kernel of weed on the first square double it on the 2nd square double date on the third square and do that all the way across.
As warren Buffett tells the story, by the time the king and realize what He had agreed to, you’re giving away the entire kingdom. The moral of the story, is that even in small amounts, compound interest can be extremely powerful, especially over a long period of time. Had the chessboard scenario been taken all the way to his conclusion, to the 32nd power, off the top of my head is in the tens of billions, tens of billions of kernels of wheat, would’ve been more than enough to sync the entire kingdom, and probably would’ve been the entire country food supply for over a year. As warren Buffett tells it, it’s pretty hard to compete with compound interest over long periods of time. Even Einstein said that compound interest is the eighth wonder of the world, he was completely right, and he definitely understood his numbers to a serious degree.
Why is Compound Interest so Darn Strong?
With all that being said, how can you use compound interest to adequately grow your investments, and turn something like $1 million, into the spending power of five or $6 million over a long period of time. The answer is in investing in high quality index funds with low fees, and that these are typically the investments that are going to give you the best bang for your buck, they are not actively managed, and they don’t eat into your profits by sucking you dry fees. In short, compound interest is the eighth wonder of the world, and is extremely powerful, because the numbers never lie, and because it’s hard to compete with numbers, especially at scale. Subscribe to our blog for more details and information, and comment with any thoughts on the article!
Final Thoughts on Why Compound Interest is the Most Powerful Force in the Universe
To put together one final exercise before completing this blog post, consider you’re someone who thinks that making $3 million by the time they retire, if you are now 25, is an impossible feat. And wallet is definitely not easy, it is nowhere near impossible with the right investment strategy. To do the math, the S&P 500 over the last hundred years, has grossed an average annual return of 10%. Currently in a Roth IRA, the maximum contribution, which used to be $5500 a year, is now $6000 per year. If you start investing at age 25, and put $5500 a year into a Roth IRA, and investor the IRA entirely in the S&P 500, even at a 9% rate of return, and no starting principle of the age of 25, all those investments over the years would add up to over 3 1/2 million dollars, which she would be able to pull out tax-free by the time you turn 65, or you’ll be able to take the maximum amount every month for social Security. Yes becoming a millionaire is about discipline, it’s about Hardwork, it’s about persistence, and unfortunately, and fortunately, it is about the long term. Invest conservatively over the long term, and the money will come. If you liked this blog post, be sure to subscribe for regular blog post updates, or comment down below with your thoughts and opinions, and we will get back to you ASAP.
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