compound interest

Compound interest can be amazing and requires time and not a huge initial investment. Sylvia Bloom was 96 year old when she passed away and donated $6.24 million to the non-profit: Henry Street Settlement. How did she manage to earn so much?

Albert Einstein compound interest

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. Compound interest is the most powerful force in the universe.”

Albert Einstein

Understanding compound interest

A good example of someone who was caught off-guard by exponential growth was the Emperor of India (according to the story).

The “rice and chessboard” is an ancient story about the inventor of the game of Chess and the Emperor of India.

The story goes something like this: The inventor of Chess presented the game to the Emperor of India, who is so impressed with the game that he offers the inventor any reward he wants. The inventor asks for a single grain of rice on the 1st square of his chess board, two on the 2nd, four on the 3rd and so on (1+2+4+8+16… etc).

The Emperor is amazed at the modesty of the inventor’s request, and thinking it can’t be that much rice, he grants the gift.

But he soon becomes angry when the court treasurers report that by the 64th square, he would need to deliver 18,446,744,073,709,551,615 grains of rice (that’s a lot of rice).

Whether that story is true or not, the exponential growth example is obvious. The same goes for compound interest. A good example would be Warren Buffett’s wealth and how it’s grown.

Warren Buffett compound interest value growth

Like Albert Einstein, Warren Buffett understood the importance of compound interest. Unfortunately, we aren’t all Buffett’s, most of us don’t have 1 million banked by 30. But you don’t have to be richt already to use comound interest to your advantage.

Sylvia Bloom is another great example of someone who understood, and used it well.

During her life she worked 67 years for Clearly Gottlieb Steen & Hamilton law firm as a secretary. During this time when her boss wanted to buy a stock, she would do so and buy the stock for her boss. Later, she would buy the same stock personally from her own salary. She passed away at 96 years and donated $6.24 million to the non-profit: Henry Street Settlement.

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