"The most powerful invention of men is compound interest"
-Albert Einstein

In this post, i'm going to introduce you to the world of compounding interest through the US stock market and how powerful this theory can change your life. According to Wikipedia, compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest from that moment on. The act of declaring interest to be principal is called compounding (i.e. interest is compounded). A loan, for example, may have its interest compounded every month: in this case, a loan with $1000 principal and 1% interest per month would have a balance of $1010 at the end of the first month. Credit card companies are great examples who practice compound interest and they sure do make tons of money annually.

Why compound interest?
As you can see, as the world's economy is growing, inflation do come into place and move along with the economy in an uptrend. For example, say a hamburger would cost as low as 15 cents in the past, now it's around $3.50-$4.00 and what makes you think that the price will remain unchanged in the future? Studies shown that inflation has historically raised prices by over 3.2% a year. This may seem insignificant but if you were to compound it in say, 22.5 years, this figure would have been doubled. So if your money is compounded less than 3.2% a year, i can assume you don't have plans for retirement!! Most of the graduates outside there might be thinking, "If i can save $1 million for my retirement fund, i will have no worries in my old age." This assumption is not wrong if you prefer to think more than twice to buy your daily needs in the future as the inflation rate will continue to rise to an unforeseeable end. Well, for those who can overtake the inflation rate of 3.2% a year, i congratulate you but don't be too arrogant, you may be overtaking by only a few percent. You can change that by investing in the US stock market and it will not only overtake the 3.2% by a few percent but way more, much more. The US stock market has an average annual compounded interest of 12.08% although there will be ups and downs fluctuations throughout the year.

You can start a small investment by contributing a reasonable percentage from your monthly salary and start growing your money from there as long as the money you invest will not affect you and your family or bring any difficulties in your life. What i mean is the surplus after taking into account your monthly expenses or a sum of money you won't be depending on during rainy days, got it?

Albert Einstein Rule 72
This rule provides you simple calculation on how long your money will double with the annual compounded interest provided, Albert Einstein came up with a rule of calculating it(known as Rule 72). For example, given annual compounded interest is 5%

The duration for your money to double = 72/5
= 14.4 years