The Power of Compounding Interest

Albert Einstein reportedly called compound interest “the eighth wonder of the world.” The idea is simple: when your earnings start earning too, time does the heavy lifting. In this video, Jonathon Taylor shows how the same $10,000 grows very differently depending on how early you start — and why the biggest variable is time, not the amount.

Video transcript

Jonathon Taylor here for Patriot Asset Advisors. I want to talk to you a little bit today about Albert Einstein. He advanced physics with a simple formula, E = mc², the theory of relativity, which explained the relationship between mass and energy. So what do Einstein and physics have to do with investing? Well, Albert understood the effect that compounding interest has on your money. He was quoted as saying, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” What does that mean? Simply that the interest on your investments, you keep — and the interest on your loans, you pay.

Let’s look at what compounding interest, and the factor of time, really does to your money. Take a slightly extreme example: a 15-year-old invests $10,000 earning 7%, and leaves it invested for 50 years. At age 65, they’d have $327,841.40 — a pretty big sum for putting 10K away.

Now take a 30-year-old who invests the same $10,000, but holds it for 35 years. They end up with $115,742.52. That’s quite a difference, folks — and the difference is time. The gap between the two is about $212,000.

A lot of people feel they don’t have the time, or that they only have a small amount of money. Trust me, this works on small amounts too. If you put $100 at 7% for 50 years, it would grow to roughly $3,278. So regardless of your age, the eighth wonder of the world is waiting for you. Go to our website, Patriot Asset Advisors, and let our team show you how to put compounding interest to work for you.