By doing this the impact of inflation is removed and the true purchasing power of the capital accumulated by Jane and John is illustrated. The above calculations present amounts in вЂњAge 22вЂќ dollars. Jane uses time and compounding to her advantage. The bottom line is they both direct $500 per month to savings for 8 years, only Jane does it much earlier. Having focussed on todayвЂ™s lifestyle for most of his working life JohnвЂ™s decided at 52 he should start saving for life beyond paid employment and started to put aside the equivalent of $500 per month when he and Jane were 22. Jane decided she would direct $500 per month of her net income to savings and maintained this practice until age 30, while John decided this money was better directed to lifestyle expenses. To illustrate the difference compound interest makes, letвЂ™s compare twins Jane and John who both entered the work force on their 22 nd birthday, providing them both some discretionary income. LetвЂ™s check the numbersД«ut first, letвЂ™s look at some numbers. It really is quite simple, but unfortunately not easy. ItвЂ™s important to realise this вЂњeighth wonder of the worldвЂќ is based on little more than primary school maths that we can all understand and apply. An example is the compounding of interest on loans, which is a disadvantage to you. EinsteinвЂ™s quote also highlights that if you donвЂ™t understand compounding interest it will work against you. The example that should be taken from EinsteinвЂ™s quote and BuffettвЂ™s achievements is that beneficial actions today will provide much larger benefits over time, due to compounding. Sure the level of wealth Buffett has accumulated would be hard to replicate, but you donвЂ™t need to have tens of billions of dollars to achieve a very comfortable lifestyle. He has achieved a higher return than most and has compounded it for longer than most, with astonishing results.ДonвЂ™t make the mistake that just because youвЂ™re not Albert Einstein or Warren Buffett you canвЂ™t tap the same benefits Buffett has. While Buffett started earlier than most in rolling his snowball down the hill (early teens) and continues growing the snowball today (turned 87 in 2017) and it is fair to say he is a better investor than most, it is the compounding of wealth he has achieved that separates him from the crowd. He understands the magic of compounding returns and you would be wise to understand it also. ItвЂ™s no coincidence his authorised biography is titled вЂњThe SnowballвЂќ, referencing The Snowball Effect. Regarded by many as the greatest investor of all time, certainly the best known, Warren Buffett has built one of the worldвЂ™s greatest ever financial fortunes largely off the back of the eighth wonder of the world, compound interest. He who understands it, earns it вЂ¦ he who doesnвЂ™t вЂ¦ pays it.вЂќД®instein isnвЂ™t the only smart person that understands the power of compound interest. вЂњThe best time to plant a tree was twenty years ago, the second best time is now.вЂњCompound interest is the eighth wonder of the world. With compound interest, the old Chinese proverb holds true. The timing of an investment is far less important than the time that is allowed for it to deliver.Д®ssentially, having a long term investment strategy вЂ“ allowing growth to be achieved over time вЂ“ provides the best possible opportunity to achieve financial security for you and your loved ones in later years. Yet the stock market performs over time and continues to do so.

Currently, there are many economies around the world that are still recovering from the financial crisis of 2008, almost ten years on. The 1990s saw a period of sustained recession.

For many, being told that it will take a good few years to see significant returns on their investments can be demotivating.ДЄnother common reason is вЂњitвЂ™s a bad time right now.вЂќ In the 1970s we experienced record breaking levels of inflation, in the 1980s Black Monday brought the biggest stock market crash since the 1920s. Modern times have encouraged us to expect immediate rewards. The key requirement for generating compound interest is time вЂ“ the longer you leave your money to grow, the more pronounced and positive the outcome.

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