Many quotes have been attributed to Albert Einstein long after he died, even though he never actually made some of them.  Perhaps the most famous of those is "Compound interest is the eighth wonder of the universe."  Regardless of who said it, compound interest is truly amazing as I point out in Chapter Five of The Confident Retirement Journey.   Unfortunately, investors often fail to see the long-term benefit because there is no immediate effect in the earlier years.  It's kind of like driving a car with a turbo charger.  There is a slight lag before the turbo kicks in, but when it does, it's exhilarating.

A recent article by Jeff Parsons, CFP in the Journal of Financial Planning puts a small twist on this, breaking the curve caused by compound interest into two parts, an early period when the growth of wealth isn’t very noticeable and a later part when the compounding effect becomes much more dramatic.  The lesson here for younger investors--or even early retirees with a 30-year retirement ahead of them--is to be patient.

 

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