The Eighth Wonder of the World
Albert Einstein reportedly said, "Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it."
Unlike Simple Interest (which only calculates interest on the principal), Compound Interest calculates interest on both the principal AND the accumulated interest. This creates a snowball effect that accelerates wealth building over time.
Key Takeaway
Time is the most important factor. Starting 5 years earlier can result in double the final corpus, even with smaller contributions, thanks to the exponential nature of compounding.
Frequently Asked Questions
What is the Rule of 72?
It is a shortcut to estimate the number of years required to double your money at a given annual rate of return. Formula: 72 ÷ Interest Rate = Years to Double.
Why does frequency matter?
Compounding more frequently (e.g. Monthly vs Annually) results in higher returns because you earn interest on interest sooner.