The Power of Compounding

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
–Albert Einstein
“My wealth has come from a combination of living in America, some lucky genes, and compound interest.”
–Warren Buffett

It’s no wonder some of the world’s smartest people and some of the greatest investors in history have recognized the power of compounding. There’s no surer way for a regular Joe or Jane to experience financial independence, than through the discipline of saving vigorously and reaping the benefits of compounding. Given enough time and compound interest, every dollar invested can multiply many times over.

Time literally is money when talking in terms of compounding. The vehicle of choice for a vast majority of investors is, of course, the stock market. Over a 20 year period, you are guaranteed earning at least something on your money when invested in U.S. stocks.

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Want to become a millionaire? Using hypothetical average market returns of 9% (sometimes this is higher or lower depending on time frame), over a 30 year period, investing $7,000 per year will get you there. $1,040,027 to be exact. Not too bad considering you only put in $210,000, roughly 1/5 of the money you end up with. This is why compounding is so powerful. Put it to work!