This Is Why Compound Interest Is More Valuable Than Ever Before
New scientific breakthroughs mean it's time to take a second look at "the eighth wonder of the world."
The wealthy have always been the ones to enjoy the lion's share of compound interest, which is why they often grow their wealth exponentially. But there's no reason it has to stay that way.
With new scientific breakthroughs that mean we'll live a lot longer, anyone now has the chance to get rich — albeit, slowly — using compound interest.
First, let's have a quick refresher on compound interest and see why Einstein called it the eighth wonder of the world.
Compound interest is the eighth wonder of the world
To get rich with compound interest, you just need to invest your money in stocks or assets that have high yields year after year.
The basic math of compound interest goes like this: If someone who is 18 begins investing just $100 each month and sees that average 10% annual yield, by the time he or she is 65, that person will be a millionaire.
After depositing a total of $56,400 over that period of time, he or she will eventually be sitting on a nest egg of over $1.3 million. If the hypothetical 18-year-old invested $200 each month in that same period, he or she would be sitting on around $2.7 million. Add some extra time to that — let's say another five years — and that figure climbs to almost $4.5 million.
Such is the power of compound interest.
With newer asset classes like cryptocurrencies, it's possible to significantly eclipse that 10% annual yield, meaning you could hit these numbers much faster. But even small bumps can make a big difference. Continuing on from the last example, if the18-year-old had achieved a 15% return, he or she would be sitting on almost $40 million!
The exact thing that makes compound interest work is also the reason many of us never put it to work in the first place: time. If you're in your late 20s or 30s or beyond, waiting 45 years to get rich doesn't sound so appealing.
Longer life expectancies make compound interest even more important
But I have good news. Things are changing; scientists are making breakthroughs in the field of longevity and aging more quickly than ever before.
Originally published in 2007, Aubrey de Grey's book Ending Aging was perhaps the first to present a unified hypothesis of the seven different forms of damage that accumulate in our body year after year. Back then, the concept of "aging as a disease" was considered borderline quackery.
Today, it's not only a field rife with innovation, but it's also mainstream, with de Grey and other leading scientists like David Sinclair, author of hit bestseller Lifespan and professor of genetics at Harvard Medical School, spreading their ideas on major platforms.
One notable concept popularized by de Grey is "longevity escape velocity." The basic idea is that we'll soon reach a point where science buys us more time than the time which has just passed. In any given year where longevity escape velocity is maintained, technological advances would increase life expectancy more than the year which just passed.
Earlier this year, de Grey tweeted that he believes there's a 50% chance we'll reach longevity escape velocity by 2036, after which point, those who regularly receive the latest rejuvenation strategies can expect a very long life indeed. The rate at which we're making breakthroughs in this area means it's time to take a second look at the rather boring, slow and steady way of building wealth that is the magic of compound interest.
The moral of the story?
Start planning now to get rich slowly.
Time will soon be on your side.
Entrepreneur Leadership Network Contributor