Why Compound Interest is the World’s Most Powerful Financial Concept

So much of what we learn in schools is traditional mathematics that don’t affect our day to day lives. Algebraic equations and quadratics might be neat but their applications are limited for most. But somewhere in every school math book lies an incredible topic: compound interest.

It’s simple and often overlooked.

If $100 is invested at 10% annually, it gains $10 in the first year.  Effectively turning $100 into $110.

You then start your second year with $110, and if it also increase by 10%, it gains $11, turning that $110 into $121.

In your third year, you begin with $121 and if it increases by 10%, you gain $12.10, turning $121 into $133.10.

A snowball effect takes place.

$100 at 10% compounding interest a year turns into:
$161.05after 5 years
$259.37after 10 years
$417.72after 15 years
$672.74after 20 years
$1,744.94after 30 years
$4,525.92after 40 years
$11,739.08after 50 years
$78,974.69after 70 years
$204,840.02after 80 years
$1,378,061.23after 100 years

 

 

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