The Power of Compounding; lessons from Warren Buffett & Naval Ravikant

The power of compounding; lessons from Warren Buffett & Naval Ravikant

Compound interest is a financial phenomena that Albert Einstein claimed to be "the eighth wonder of the world." Its power stems from the way one is able to convert small deposits into big significant wealth. Over the years, successful investors have embraced this.

Warren Buffett, one of history's most renowned investors, attributes much his wealth to the power of compounding. He once expressed: "My wealth has come from a combination of living in America, some lucky genes, and compound interest." The essence of compounding lies in - earning interest on interest. This allows for investments to increase exponentially rather than linearly.

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Slow and steady, but later significant.

Let’s take an example. If you invest $1,000 at a 15% APY (Annual Percentage Yield), you’ll have $1,150 after the first year. In Year 2, you’ll earn 15% on $1,150, bringing you to $1,323. By Year 3, your investment grows to $1,521.

The magic of compounding kicks in: after 20 years, your investment would grow to over $16,000, a 1537% increase. This shows the power of compounding—slow and steady, but eventually substantial gains.

Set a your custom goal: try our compounding calculator.

Compound interest goes beyond finance

Naval Ravikant, angel investor highlights the broader implications of compounding. He shares that: "Compound interest also applies to learning." The greater you capacity for learning, the greater your ability for staying on top of market trends, new technologies, and investing strategies. Ultimately, this is what gives you an edge in reading that vast array of opportunities and striking gold.

Compound interest goes beyond a purely financial or strategic business concept; it is a universal one. It can be applied interpersonally; to skills, relationships and self-mastery. Where small, consistent efforts can yield spectacular effects over time. And indeed, it can be applied to planet and climate action; whether it’s soil health, forrest growth or developing renewable energy infrastructure. Impact follows the same law of accumulation.
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Closing thoughts

To conclude, the value of compound interest stems from its exponential growth potential. On the one hand, it takes time and patience; it requires staying consistent when faced with shiny opportunities and distractions, but this approach can turn modest investments into significant gains.

So, how are you harnessing the power of compounding? And what if you add the power of an annual contribution? See it for yourself - try our compounding calculator now.

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