Compound interest

Did Einstein ever say compound interest was the 8th wonder of the world? | by Christian Soschner


Let’s check the facts.

As Gary Vaynerchuk said in one of his speeches:

“There is no passive income, no magic formula. Historically, there are only two areas where you can invest your money and create something close to passive income over time:

Public stock market and

Real estate

But let’s face it: people still need to work to earn money which can then be deployed in both of these possibilities – forever and one day.

Investing in the stock market or investing in real estate requires time, patience, expertise and the acquisition of the skills necessary to choose the right objects.

And only then can compound interest generate wealth for those willing to treat investing as a side hustle at the very least. Those who treat it like a job and invest 8-12 hours a day in it will most likely create generational wealth.

When interest rates still existed, money in a bank account would earn an interest rate of 5% overall. This means that leaving a thousand dollars in a savings account was rewarded with an interest rate of 50 dollars.

Awesome, isn’t it? Get a reward for simply leaving money in a bank account – risk free.

The following year, when the person simply let the $50 sit in the bank account, the institution rewarded $1,050 with an interest rate of 5%. As a result, $52.50 is added to the account, which then displays $1,102.50.

Incredible, isn’t it? And the process repeats itself unless the person withdraws the money.

This economic principle also exists on the stock market and in real estate. Large companies increase their revenue and profits over time, which increases the price. Real estate produces rental costs for the owner and also appreciates.

Both are opportunities for everyone to create enough wealth to live a rich and relaxed life.

Yet, as Gary V. said, it is not passive income, because you must first create capital through work to have enough to deploy it in these two options.

I recently came across Mohnish Pabrai’s videos in which he explains how he became a multi-millionaire by simply copying Warren Buffett’s strategy and using the “compound interest phenomenon”.

In this speech, he quoted Einstein:

“Compound interest is the 8th wonder of the world”.

Other famous investors I have heard similar quotes attributed to Einstein like

“Compound interest is the most powerful force in the universe.”

It’s a bit more like Einstein, because the universe is involved.

Another funny quote I read:

Compound interest is more complicated than the theory of relativity.

That should have rung a bell, as the interest calculation above is simple to understand, whereas when I read Einstein’s Theories Onlineat least for me it is complex.

I never questioned the author of the quotes, but for some reason this time I wondered:

“Is it true?”

Why should Einstein say such things?

So I went online and did some research with Dr. Google. To be honest, it wasn’t as easy as I thought to find out if Einstein said something like that or not.

The internet is full of the above quotes which mostly attribute them to Einstein. Some to Napoleon, Rockefeller or Rothshield.

Eventually I remembered the site quote finder and found two items who elaborated on this problem.

The conclusion:

The citation investigator found no evidence that Einstein ever said anything like compound interest is the 8th wonder of the world.

However, most copywriters and marketers have historically liked to use famous people to draw attention to specific quotes that help businesses increase revenue.

Although Einstein probably never considered compound interest to be more complex than his theory of relativity, the phenomenon of the monetary system is still excellent.

It has helped people like Warren Buffett and Charlie Munger, Jeff Bezos or Elon Musk create significant wealth.

It mainly helps ordinary people like you and me to amass enough capital to live a relatively relaxed life.

Indeed, compound interest is the 8th wonder of the world that helps people build wealth, as long as they know the rules of the wealth game.