The Awesome Power of Compound Interest
• Compound interest is interest earned on interest
• Compound interest may play an important role in meeting long term goals
• Time is an important component when thinking about compound interest
• The rule of 72 is a shortcut in calculating how long it takes for an investment to double in size
It is often reported that Einstein may have referred to compound interest as “the most powerful force in the universe” and “the eighth wonder of the world.” And who can argue with him? Compound interest is interest earned on interest, or in other words adding interest to principal and earning a return on the new sum. Contrast this to simple interest, in which interest is only earned on the principal amount. When harnessed properly, compound interest can play an important role in meeting our long-term goals and can provide exponential growth on an investment.