How much would you think a penny doubled everyday for 30 days would end up being just guessing? $10 dollars or $100 dollars maybe? How about over $5 million dollars? How is this possible? Through the power of compounding.
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” – Albert Einstein is reported to have said.
A penny doubled everyday for 30 days….
Compounding capital is one of the greatest tools a trader or investor can use to create wealth. It is one of Warren Buffett’s Holy Grails of investing success. The principle of compounding is that you allow your money to make more money. Eventually your money is making more money than you could ever earn through working. While the growth of the doubling of a penny can be surprising and not intuitive there are ways to really compound capital with investing and trading over the long term at less impressive rates but still end up with a lot.
It is good to think about the power of compounding whenever you are tempted to redeem your capital from a trading, investing, or retirement account. If you have a quantified system for growing your account over the long term, it is very expensive to not let your winner run.