The Model: Compound Interest

A person that I have a great deal of admiration for is Albert Einstein. He once said that "Everything should be made as simple as possible but not simpler." And, when asked what the greatest invention of man was, he said compound interest. He considered it to be the the 8th wonder of the world. 


When Einstein was asked to expound on his statement about compounding he said "Compounding is mankind's greatest invention because it allows for the reliable systematic accumulation of wealth."


The power of this concept is clearly shown when one takes a penny and doubles it or compounds it(@100%) for 30 days. At the end of 30 days the penny's value has gone from 1 cent to over 5 million dollars.

Here is the mathematical progression:

# of Days 1 Penny Compounded Daily
Day 1 ------------------------------>$0.01
Day 2------------------------------> $0.02
Day 3 ------------------------------>$0.04
Day 4------------------------------> $0.08
Day 5 ------------------------------>$0.16
Day 6 ------------------------------>$0.32
Day 7 ------------------------------>$0.64
Day 8 ------------------------------>$1.28
Day 9 ------------------------------>$2.56
Day 10 ------------------------------>$5.12
Day 11------------------------------> $10.24
Day 12 ------------------------------>$20.48
Day 13 ------------------------------>$40.96
Day 14 ------------------------------>$81.92
Day 15 ------------------------------>$163.84
Day 16 ------------------------------>$327.68
Day 17 ------------------------------>$655.36
Day 18 ------------------------------>$1,310.72
Day 19 ------------------------------>$2,621.44
Day 20------------------------------> $5,242.88
Day 21 ------------------------------>$10,485.76
Day 22 ------------------------------>$20,971.52
Day 23 ------------------------------>$41,943.04
Day 24 ------------------------------>$83,886.08
Day 25 ------------------------------>$167,772.16
Day 26 ------------------------------>$335,544.32
Day 27 ------------------------------>$671,088.64
Day 28 ------------------------------>$1,342,177.28
Day 29 ------------------------------>$2,684,354.56
Day 30 ------------------------------>$5,368,709.12

When I look at this I find it to be amazing. Based on my understanding this could have practical application if we copy the actions of the wealthy. This can be broken down in 3 steps: (Step 1) Buy Assets or things that pay us. (Step2) Re-invest the profits. And (Step 3) Form a network.


If this is done consistently compounding effect would take place. Our Asset Column would grow when we purchase an asset and re-invest the profits. Our "Wealth Investment Network" would also grow when we find people who are willing learn apply and practice wealth principles.

The next question to answer specifically is --> HOW????


I'll tackle that in my next post.