Einstein’s 8th Wonder of the World

Play Video


Hi, you know, Albert Einstein said that compound interest is the eighth wonder of the world. He who knows it, earns it. He who doesn’t, pays it. So let’s take a look at this slide on the screen. This is a great visual representation of compound interest with some different factors in time versus money.

So diving right in here, this light blue line is the consistent investor. They invested from age 25 to 65 and earned about 7 percent per year. And, and so what you’ll see is, is they ended out at the best portfolio here. When they invested a total of $96,000, their ending portfolio at 65 was $512,700. Let’s take another scenario.

Someone who started at age 25 and then stopped investing at age 35. Again, 7 percent per year, and they invested the same amount. So they ended up investing a total principal of $24,000 and ended at a portfolio of $270,100. Moving down the list again is the late investor. Someone who waited until age 35 to start.

and then stopped investing at 65. They, in that time frame, were able to invest $72,000 and ended at $240,600. And then the last, the consistent saver in cash, saving in cash from 25 to 65 which earned on average 2. 3 percent per year. Sounds to me like that’s a little bit better than cash, but anyways.

They averaged out at $158,000. And again, because they’re saving the same amount as the, as the consistent investor, they saved the principle of $96,000. So what are the key themes to talk about here? The consistent investor who invested the same amount their whole life, but at least started at 25 and kept it going all the way through, they clearly.

It had the largest retirement portfolio by far and large. Moving down the list, what’s interesting to show that I always try to discuss, especially with younger people, is, is look how important it is to start investing early than to invest long. So the early investor, they only invested for 10 years, but they started at age 25.

Yet compared to the late investor who invested for 30 years, but didn’t start until 35, they had a higher portfolio than by almost $30,000. And they invested $24,000 compared to $72,000. Time is the strongest component of compounded interest. It’s more important to start than to wait for the perfect time.

There’s also an old Japanese proverb I like to say, you know, The perfect time to plant a shade tree was 20 years ago. The second best time is today, right? So, especially working with the younger crowd, my, my biggest stressor to them, It’s to start with something. I like to speak with a lot of the high school kids in a program here in South Florida.

And again, I advise them, I show them, I can show you on paper. If you can start with a small amount of money, but at least start, you can end up a millionaire versus waiting until you’re 35 and tripling your contributions and still not reach that goal. So digest all this, understand that time is a bigger factor.

Look at where you’re at. If you need help generating a retirement income plan, let’s have a simple phone call. You can reach out to us. Through our website at BocaRetirement. com or give us an email at contact at BocaRetirement. com. Thanks. Bye. One last thing. We are also slowly setting up a retirement mastermind group I am calling Retirementality.

If you don’t know what a mastermind group is, it’s a group of like minded individuals getting together to help each other solve common problems. We plan to run this group in a roundtable format so peers can help each other. We might talk about things like finance. Things like healthcare, things like travel, things like local events.

If you are interested in joining this group, you can send me an email at contact at Bocaretirement. com. This will be a complete anti sales group designed purely in helping you help others retire successfully.

8 Questions to Ask a Financial Advisor

Are you asking the right questions to secure your financial future? Gain access to our free guide on what to ask a prospective financial advisor by filling out the form below.

This field is for validation purposes and should be left unchanged.