There are two quotes attributed to Albert Einstein regarding compound interest. The first has Einstein calling compound interest “”the greatest mathematical discovery of all time”, in the second Einstein claims that it’s the “ eighth wonder of the world”. Whether these quotes are accurate or not there seems to be something magical about compound interest.

What is it?

The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings. The magic of compound interest transforms your hard earned money into a very efficient long-term capital building tool. For compounding to really work, two things are needed: you need to re-invest all earnings and time. The more time you give your investments, the more you are able to optimize the income potential of your original investment.

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