Power of Compound Interest — a Mathematical Deep Dive
The Secret Sauce Behind Financial Independence
Albert Einstein is reputed to have said:
“Compound interest is the eighth wonder of the world. He who understands it, earns it — he who doesn’t, pays it.”
Appreciating the life-changing power of compound interest can transform your life, whether you’re scaling your startup or investing for financial independence.
Edit: See sequel articles here and here, and relevant videos on my YouTube.
1. Compound Interest = Exponential Growth
Many people mistake compound interest for simple interest, which grows your assets linearly. Compounding assets grow exponentially*, which mathematically skyrockets their value. This effect is dramatically enhanced by the interest rate (i.e. exponent) and time in the market.
Consider putting $100 into a variety of asset types in 2010. Even though Bitcoin’s annualised return rate — at 230% — was a crazy 22 times more than the US stock market average of 10.5%, your wealth snowballed way more than 22 times that over a period of ten years. We’re talking a difference of millions of dollars versus just a…
