Compound Interest: The Ninth Wonder of the World



 Compound interest has been described by Albert Einstein as the 9th Wonder of the World. Yet many people fail to take advantage of its powerful effect due to a variety of reasons. Compound interest refers to the concept that a principal amount of money will yield a specific amount of interest based on a particular rate. Interest is then earned not only on the original principal, but also on any unpaid interest that has been added to the principal. The more frequently the interest is compounded, the faster your investment will grow. In the picture to the left, Einstein is outlining another important principle regarding interest rates. He is explaining the Rule of 72 which says...to find the number of years required to double your money at a given rate...you just divide the interest rate into 72. For example, if you want to know how long it will take to double your money at ten percent, divide 10 into 72 and get 7.2 years. The interest rate that is compounded is extremely important and can have a significant effect on your investment yield. The billionaire Warren Buffett began investing and taking advantage of the compound interest phenomenon at the age of 12. The younger you are when you take advantage of this financial principle, the more money you can accumulate in your lifetime. As a high school student you have the potential to change your life by putting this powerful lesson into practice.

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