In this episode, I'm not gonna talk about compound interest in the sense of how you can be a millionaire by the time you retire if you saved $300 every month into a Roth IRA with a Target Date Index Fund with an annual return if about 8%.
Albert Einstein called compound interest the greatest force in the world. The same guy who discovered and developed the theory if relativity. One of the pillars of modern physics. This got me thinking why is compound interest so powerful and it came down to one simple factor, TIME and REPETITION.
An easy way to think of this is like this. Before any one of us could read a single book, first we had to understand the alphabet. We had to know what letters were and what each shape meant. After that, we had to understand words. So we were thought and we learnt what I combined with S meant. Then that grew into us learning three letter words like ARE. From there we learned about sentences and how to put together a sentence. We started with short sentences like "My name is Kelechi Iwuaba". Then we learned about multiple sentences combined making a paragraph. Then we learned about punctuations and how that changes the meaning of a sentence. With all of these pieces of knowledge combined we get to the point where we can read an entire book.
This is Compound Interest at its finest. This is the same thing in our lives. Every skill every ability anything will take a compounding effect to get us to our goal. But the thing about compound interest is it doesn't care whether the outcome is good or bad for us. It works both ways. For good habits like reading the more you read the better and faster you get info out of it. For bad habits like smoking the more you smoke the more you want to smoke.
It's the same in finance, good compound is with investing like the example earlier. It can work to your benefit or it can work to your destruction like with debt.
At the end of the day, we all have to ask ourselves. What am I choosing to compound in my life?
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How to Turn 1¢ into $5,000,000