They are living their life to the fullest. They are passionate about technology, cryptocurrency, building time machines, and travel. Jack and Elon are best of friends at 45 years of age. While Compound Interest adds the interest of the previous period to the principal and then calculates interest for the subsequent periods.Īmount (P+I) – The final sum that you are due to receive from the investments that you have made. The key difference between Simple Interest and Compound Interest is that Simple Interest doesn’t add the interest of the previous periods in the calculation for the interest of the current period.
Time Period (T) – It is the time duration for which you have made the investment. Rate of Interest (R) – The interest rate is the percentage growth rate at which you expect the investments to grow every year. Principal (P) – Principal is the original sum of money put into an investment instrument. In this article let us delve deep into the topic of compound interest and understand how does it generate wealth for you? Before going ahead let’s go through a few technical terms.
A lot of successful investors have understood its power and it surely has helped them build wealth. Anyways everyone agrees that compounding is a very important tool.Ĭompound Interest is a mathematical formula that adds tremendous value to investments in the long term. However, according to a few in the financial domain, compounding may be regarded as the most important wonder of the world. Well, Einstein isn’t wrong, and a lot of economists agree with the above statement. He who understands it earns it … he who doesn’t … pays it.” Albert Einstein
“Compound interest is the eighth wonder of the world.
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