Why Compounding is the 8th Wonder of World || Facts related to Compounding – FoolInvestor

 The Magic of Compounding 

Compounding is a Common word that most people face whenever they talk about money or personal Finance. Not each and every person knows about Compounding properly. Because school didn’t teach about real life money Management.

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Compound Interest Is Known as the 8th Wonder of the World, Why?

In most of the videos articles available on Interest includes ” Einstein ” said “Compounding is the 8th Wonder of the World” and I think it is really an 8th Wonder. Because compounding has the ability to convert a single penny into 5 million in a month. Yeah! This result is quite shocking and today in this article we will talk about “Compounding” and the amazing facts related to Compound Interest.

What is Compound Interest?

In the simple world the meaning of compound interest is earning interest on our principle and reinvesting that interest to earn more interest. And this process goes on to give shocking figures at the end. There is also one another line dedicated to compound interest that is “Compound interest is the most powerful force in the universe.”

For example- John invested $100 in an account that pays him 10% interest annually. Which makes him $110 at the end of one year. If compound interest applied his already earned interest [$10] will get interest on it. Which gives him $121 in two year. Amazingly, in 30 year his initial investment will turn into $1,744.94.

On the other hand, with simple interest John will only be able to earn $400 on the $100 initial investment he made in 30 year.

Important – The compound interest we earn is added back to principal at different time intervals and it is very important to understand. For example – we are earning 10% annually, monthly, daily or continually on our principal. As soon as our interest is added to our principal, the earned interest will start earning interest.

Well, most of the time we hear from rich people that they never work for money because money works for them. And Compounding is the magic behind this statement.  As a wise man once said, “Money makes money. And the money that money makes, makes money.”

Facts related to Compounding  – 

1) Compound Interest Works for All – This Magical term works the same whether you invest one dollar or one million dollar. Rich people have larger opportunities but you can also start investing now!
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2) Compound interest is a double-edged sword – Because, it is a blessing if you use it to save for you, Otherwise it is cruel if you borrow money.

3) Time – As soon as you start investing, it grows faster. For example, money invested at 10% will double in 12 year, but it will be worth 4 times in 24 years.

It is true that if you want fruits tomorrow you have to plant a tree today. Similarly, If you want to get rewards from compound interest in the future, you should invest today!

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