Simple And Compound Interest Quotes

In regards to the price of commodities, the rise of wages operates as simple interest does, the rise of profit operates like compound interest. Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.

Persistence trumps talent. What's the most powerful force in the universe? Compound interest. It builds on itself. Over time, a small amount of money becomes a large amount of money. Persistence is similar. A little bit improves performance, which encourages greater persistence which improves persistence even more. And on and on it goes. Lack of persistence works the same way -- only in the opposite direction. Of course talent is important, but the world is lit erred with talented people who didn't persist, who didn't put in the hours, who gave up too early, who thought they could ride on talent alone. Meanwhile, people who might have less talent pass them by. That's why intrinsic motivation is so important. Doing things not the get an external reward like money or a promotion, but because you simple like doing it. The more intrinsic motivation you have , the more likely you are to persist. The more you persist, the more likely you are to succeed.

If the widget company consistently earned a superior return on capital throughout the period, or if capital employed only doubled during the CEO’s reign, the praise for him may be well deserved. But if return on capital was lackluster and capital employed increased in pace with earnings, applause should be withheld. A savings account in which interest was reinvested would achieve the same year-by-year increase in earnings—and, at only 8% interest, would quadruple its annual earnings in 18 years. The power of this simple math is often ignored by companies to the detriment of their shareholders. Many corporate compensation plans reward managers handsomely for earnings increases produced solely, or in large part, by retained earnings—i.e., earnings withheld from owners. For example, ten-year, fixed-price stock options are granted routinely, often by companies whose dividends are only a small percentage of earnings. An example will illustrate the inequities possible under such circumstances. Let’s suppose that you had a $100,000 savings account earning 8% interest and “managed” by a trustee who could decide each year what portion of the interest you were to be paid in cash. Interest not paid out would be “retained earnings” added to the savings account to compound. And let’s suppose that your trustee, in his superior wisdom, set the “pay-out ratio” at one-quarter of the annual earnings.

Small changes in how much you notice the luck that you would otherwise overlook will have a big influence on the way your life turns out. Those small changes act like compounding interest that pays big dividends on your future decision-making.

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It’s Just Not Logical Compound interest also gives results that don’t look at all logical. Think about two young people who want to start investment programs. One starts at 18 years of age and faithfully invests just $1000 a year. At age 30 she stops this particular program so she can buy a house and start paying it off. She leaves the original investment to run along on its own with the earnings compounding. The other investor dithers around until age 30 and then starts to invest too. However, to make up for lost time, he puts away $2000 a year till age 65. Who do you think would end up with the most money if they both averaged 10% per annum? Is it the woman who invested $1000 a year for 13 years and then let the balance compound for 35 years, or the man who invested $2000 a year for 35 years? Amazing as it may seem, the woman would have $690,000 for a total investment of $13,000; the man would have $542,000 for a total investment of $70,000. Can you see why it happens? Because after 13 years her $1000 a year has grown to $24,500 and the compound growth on that in the 14th year alone is $2450 a year. That is almost 25% more than the man was contributing. Accordingly he can never catch her, only because she started first.

He said the majority of investors fail to take full advantage of the incredible power of compounding—the multiplying power of growth times growth. Compound interest is such a powerful tool that Albert Einstein once called it the most important invention in all of human history.

The Rule of 72 is very simple: To determine how many years it will take an investment to double in value, simply divide 72 by the annual rate of return. For example, an investment that returns 8 percent doubles every 9 years (72/8 = 9). Similarly, an investment that returns 9 percent doubles every 8 years and one that returns 12 percent doubles every 6 years. On the surface that may not seem like such a big deal, until you realize that every time the money doubles, it becomes 4, then 8, then 16, and then 32 times your original investment. In fact, if you start with a single penny and double it every day, on the thirtieth day it compounds to $5,338,709.12. Are you starting to understand the power of compound interest? No wonder Einstein called it the greatest mathematical discovery of all time. Let’s assume a child is born today. For the next 65 years, she or her parents will deposit a certain amount into a stock mutual fund that pays an average annual return of 10 percent. How much do you think they need to deposit each day in order for her to have $1 million at age 65? Five dollars? Ten Dollars? In fact, a daily deposit of only 54 cents compounds to more than $1 million in 65 years. It really helps to start early.

if you consistently practice the techniques recommended in this book, you will automatically side-step most of the emotional investment traps. Pay off your credit card and high-interest debts and stay out of debt. Formulate a simple, sound, asset allocation plan and stick to it. Systematically save and invest a part of each paycheck in accordance with the asset allocation plan. The earlier you start, the richer you become. Invest most or all of your money in index funds. Keep your costs of investing and taxes low. Don’t try to time the market. Tune out the noise, rebalance your portfolio when necessary, and stick with your plan. By doing those things, you will intelligently manage risk. You will buy low, sell high, and have the power of compounding working in your favor. You will slowly but systematically build wealth and a nest egg for a comfortable retirement. With a little luck, you will have more money than you dreamed you would ever have. These time-tested techniques have worked for millions of other people and they can work for you, too.

Hubbert laid this out in the Technocracy Study Course: Should the fruit flies continue to multiply at their initial compound interest rate, it can be shown by computation that in a relatively few weeks the number would be considerably greater than the capacity of the bottle. This being so, it is a very simple matter to see why there is a definite limit to the number of fruit flies that can live in the bottle. Once the number is reached, the death rate is equal to the birth rate, and population growth ceases. Very little thought and examination of the facts should suffice to convince one that in the case of the production of coal, pig iron, or automobiles, circumstances are not essentially different.

Debts are subject to the laws of mathematics rather than physics. Unlike wealth, which is subject to the laws of thermodynamics, debts do not rot with old age and are not consumed in the process of living. On the contrary, they grow at so much per cent per annum, by the well-known mathematical laws of simple and compound interest ... It is this underlying confusion between wealth and debt which has made such a tragedy of the scientific era.