The Ultimate Guide to Compound Interest
Albert Einstein famously called compound interest the 8th wonder of the world. "He who understands it, earns it; he who doesn't, pays it."
What exactly is Compound Interest?
Unlike simple interest, which only pays you based on your initial deposit, compound interest pays you interest on your interest.
Imagine a snowball rolling down a hill. At first, it gathers a tiny amount of snow. But as it gets bigger, its surface area expands, allowing it to pick up exponentially more snow with every rotation. This is exactly how wealth is built.
Example Calculation:
If you invest $10,000 at a 10% annual return, after Year 1 you make $1,000. Your new balance is $11,000.
In Year 2, you don't just make $1,000. You make 10% of $11,000, which is $1,100.
By Year 30, that same $10,000 deposit has snowballed into $174,000.
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