Albert Einstein or maybe it was Yogi Berra called this deceptively simple formula the "greatest mathematical discovery of all time.
That's right, just three straightforward inputs can change your life: Since words cannot adequately describe the magical nature of compound interest , let's try a few visuals. Not only have you earned interest, but you've earned interest on your interest.
And all you had to do was invest your first paycheck. That said, let's be honest: Behold compound interest in a mildly caffeinated state. Now we're at half a million. Still, we think you can top it. Go ahead, tinker with this compounding calculator to see what we mean.
If you don't believe you can become a millionaire with just the resources you have right now, keep reading. Oseola McCarty was born in Mississippi in For nearly 75 years, she lived in the same simple house, washing other people's clothes for a living and putting whatever money she could into savings accounts at local banks. It soon came out that this washer woman had managed to amass nearly one quarter of a million dollars over her lifetime.
Time -- a key part of the compounding equation -- helped turn her meager early investments into hundreds of thousands of dollars.
As remarkable as the Oseola McCarty story is, the ending could have been a blockbuster. After she died in , one of her bankers wrote to us saying: If we had been able to introduce her to equities earlier, she would have left millions instead of thousands. Remember, the amount you save and your time horizon -- how long you have until you need the money you've invested -- are only two-thirds of the compounding equation.
Oseola excelled in both. But she did pay a price for ignoring the rate of return on her investments. Typically, the more risk you are willing to take on by, say, investing in stocks rather than bonds , the higher your potential return. But risk is a four-letter word to a lot of folks: They're happy to settle for lesser returns to avoid it. Stuffing all your savings into the mattress -- or sticking only with safer investments like Treasury bills or bonds -- is even more disastrous. It's not simply that they return less.
It's that they barely keep up with the rate of inflation, and that means your retirement dollar is not going to go as far as you think. We Fools believe the best place for your long-term key word There you have it: Financial independence is just three variables away.
So start saving now as much as you can , and invest it well. Because the sooner you get the wonder of compounding working for you, the sooner you'll reach your financial dreams.
And that's exactly what this series will help you do. Who wants to be a millionaire? That's what we thought. Here's the magic code you need: Plug in those numbers -- in that exact order -- here. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Skip to main content The Motley Fool Fool. Stock Advisor Flagship service. Rule Breakers High-growth stocks. Income Investor Dividend stocks. Hidden Gems Small-cap stocks. Inside Value Undervalued stocks. View all Motley Fool Services. Learn How to Invest. If there were an eighth wonder of the world, we'd nominate the equation for compound interest: If you're not a math geek, don't worry; we're going to decipher that for you.
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