The Greatest Discovery of the 20th Century


From the book "The Truth About Money"
by Ric Edelman

"Albert Einstein was once asked to name the greatest discovery of the 20th century. Most expected him to refer to his theory of relativity, nuclear energy or some other important development. His answer though: Compound interest. Was he joking? Look at these figures, then decide.

If you were to invest $10,000 at 5% for 20 years, your profit from the investment would be $17,126 (ignoring taxes). But if you doubled the rate of interest to 10%, how much money would you earn?

Although it would seem that doubling the rate would double the return, Einstein demonstrated that this is not the case: Increase the rate by 100% increases the return by 350%. In other words, instead of earning $17,126 in interest, you would earn $63,281.

That's the power of compound interest: Money doesn't grow linearly - it grows exponentially! Take it a step further: If you earn 15% instead of 5%, your profit would be $187,155. Thus three times the rate produces 11 times the return. And at 20% - a four-fold increase in rate - your profit would be $518,275 or a return 37 times higher that that produced by 5%."


Compiled by Thomas George