Manage your portfolio carefully to ensure the taxman isn’t taking a cut of your annual dividend income. This is less of a problem if you hold your money offshore, but you may need to seek tax advice. A stock that yields 6 per cent and raises its dividend by 5 per cent a year will double your money in just 12 years from income alone, according to the investment website, Motley Fool. The good news is that you can feel the power of compound interest simply by paying money into a savings account and patiently letting it grow in value, year after year. There is no question that Einstein enjoyed the personal freedom to succeed in the United States afforded by the country’s capitalist underpinnings.
Did Albert Einstein declare compound interest to be ‘the most powerful force in the universe’?
In personal finance articles I frequently find quotes injected to attribute some further relevance to one’s position. We suspect that this perspective on the power of compound interest is a fairly modern invention, one which has been retroactively placed into the mouth of a prominent dead person to give it more punch. Proxy voting means that a person can authorise someone residing in the same polling booth area why is ethics important in writing to cast a vote on his behalf.
Don’t overlook Einstein’s more ominous reference to people who pay compound interest. Deferring interest payments on loans or credit cards means that interest accrues and adds to the outstanding balance. Sometimes a comment is attributed to a difference between turnover and revenue with table famous individual to increase the prestige and believability of the comment. Also, a quotation from a famous person is often considered more interesting and entertaining. Western companies, particularly in Britain and the US, have traditionally paid the most generous dividends, says Tim Harvey, the director of Offshore Online, an international broker.
He was a pretty smart guy, so it’s fair to assume that there’s some wisdom in that assertion. Regardless of the specific context of that quote, Einstein astutely cited the consequential power of compound interest in finance, investing, and economics. When company profits are growing, they raise their dividends to reward investors. Some companies strive to do this year after a commercial kitchen year because they see it as a mark of a well-run enterprise.
- QI has found no substantive evidence that Albert Einstein, Baron Rothschild, or John D. Rockefeller employed the saying.
- Mature stocks that pay dividends distribute a proportion of free cash flow, and those distributions tend to rise as the company builds profits year after year.
- Being thankful for these opportunities is certainly one reason not to throw it away by making bad decisions with money.
- We suspect that this perspective on the power of compound interest is a fairly modern invention, one which has been retroactively placed into the mouth of a prominent dead person to give it more punch.
One reply on “Compound Interest Is Man’s Greatest Invention”
FYI – Robbins’ exact line was “Compound interest is such a powerful tool that Albert Einstein once called it the most important invention in all of human history.” You may not have as much money as Rockefeller, but you can share in his pleasure (hopefully, you will also find other ways of having fun). “For the seriously long-term investor, dividends are where the action is,” he says. This compounding process repeats itself year after year, which means you earn interest upon interest upon interest. It is like a snowball rolling down a hill, getting bigger and bigger, year after year after year. You have to leave it in your account to allow the compounding effect to gather momentum.
Disdain for cult of personality
Moving to the United States and becoming a citizen of the country was important to Einstein. He loved the idea that he and others could question authority without fear of reprisal. Einstein also enjoyed the lack of a class system as was prevalent throughout Europe. America provided the opportunity for any individual to succeed.
The more periods that you have for compounding, the larger its effect. You can’t get to the huge returns of the 30th year of compounding without building through the first 29 years of growth. Compound interest doesn’t technically apply to stocks, because common stocks don’t pay interest to shareholders. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. If you are patient, and stick with your investments over time, you will almost always come out ahead.