Compound Interest!

'Use your brain'

Sometimes when I get tired of reading quarterly reports, looking at balance sheets, studying accounting techniques that apply to stocks or have a bad day with a trade and feel like giving up I will pull up a compound interest calculator and plug in some numbers.  You can find a good calculator at the following link:  http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Albert Einstein said, "The most powerful force in the universe is compound interest.".  He was pretty smart and if you check out the calculator you will see that if you put some money to work over time and allow the effects of compound interest to work you will see how powerful it can be.

For the last hundred years or so stocks have gone up 10% a year on average.  I know that I can make up a diversified stock account that has dividends alone that return 9%-11% a year.  Jim Cramer was able to make an average return of 24% for his clients for years and years at his hedge fund.  When Warren Buffett started investing he made 60% returns each year.

For fun try plugging so of these different interest rate returns into the calculator along with a dollar amount you can save up and then a dollar amount you can contribute each year.  You can vary the amount of years that you allow the investment to grow.  Every time I show this to people they are shocked by what compound interest can do.  I bet that you will be too!