﻿Let’s talk about the 8th wonder of the world.
No, I’m not talking about the great pyramid. Though that would be awesome to see. I’m talking
about Compound Interest. Hi, if you are new to the channel, my name is Tae from Financial
Tortoise - a channel dedicated to helping the Sandwich Generation reach Financial Security.
Albert Einstein called compound interest the 8th wonder of the world. He’s a pretty smart guy. So
if someone as smart as Einstein labels something the 8th Wonder of the World - I like to pay
attention. So in this video, I want to talk to you about the secret sauce to really building wealth.
Time. And how compound interest can use time to blow up your banking account. There are literally
hundreds of books written about Warren Buffet - the Oracle of Omaha. They all try to dissect
his success. What is the secret formula to his investment strategy? What companies and
industries he is investing in? How is he still alive after eating all that junk food!? At the
time of this video, Warren Buffet is worth 100.5 billion dollars. That is a lot of money. However,
an interesting fact that a lot of people overlook, is that 99% of the 100 billion
actually was accumulated after his 50th birthday. Warren Buffet didn’t earn his first $1 billion
until he was 56 years old. People clamor all over Buffett's investing strategy. However, what most
people overlook is that his success didn’t come primarily from his investment strategy alone,
but the fact that he’s been investing for three quarters of a century. The curious child that he
was, at 11 years old, Warren Buffet was already buying stocks. By the time he was 21 years old,
he already had a net worth of $20,000. The simple fact is this. Warren Buffet’s $100 billion net
worth isn’t due to just being a good investor, but being a good investor since he was a child.
I’m not saying he doesn’t have great investing skills - because I wish I had half the financial
acumen that he has. However, we all miss the point when we attribute all his success to his investing
skills. Warren Buffet is worth $100 Billion today because he’s been a great investor for 70 plus
years. He is a skilled investor, but his secret sauce is time. That is how compounding works.
If you don’t believe me, let’s dive into the math and see compound interest in action. but first if
you're enjoying this video and you want to learn more about personal finance and navigating life
as a sandwich generation, I would appreciate it if you subscribe and hit the like button, because
that would really help out the channel. When you are first introduced to a compound interest table,
something doesn’t feel right. It’s hard to wrap your head around it. Or it could just be me.
Anyways, you can intuitively understand linear math. But not so for exponential math. To
give you an example, let’s play a little game. Let’s say I came up to you and offered you two
options. Option 1 - I give you $1 Million Dollars. Right now, in cold hard cash. Option 2 - I give
you a penny. But this isn’t just an ordinary penny. But a magic penny. And this magic penny
will double every day for the next 30 days. Now, what option would you take? At a first glance,
it’s an easy choice. Take the $1 million dollars. It’s a lot of money and it definitely feels a lot
more than the penny, even if it doubles every day for the next 30 days. But, what if I was to tell
you, you would be making a serious mistake if you pick the one million dollar payout.
Why? Because of the power of compounding. Can you guess what that penny will be in 30 days?
Are you ready for it? $5 million dollars. The compounding effect is small initially. You
barely hit a hundred dollar range half way through the month. But take a look at the last few days.
In the final 7 days, you go from around $80,000 to $5 million. It’s really hard to wrap your head
around this type of math, but it's right there in front of you. And this was how
99% of Warren Buffet’s fortune was made after his 50s. If Warren Buffet had started investing much
later in life or stopped investing at a certain point, I doubt we would know who he is today.
This is the primary reason why Einstein called compounding the 8th wonder of the world - because
it really is a wonder. But this wonder is also a double edged sword for many people. Because
it is hard to wrap our heads around it, many people ignore its power and focus on growing
their net worth through other ways. Compound works its magic when we can maintain a solid,
consistent return for a long period of time. This is what Warren Buffet did. And a good low
cost index fund like VTSAX, provides that solid consistent return for people like you and me.
We just need to hold on to it long enough for the magic of compounding to work. However, people are
inpatient and compounding is not just intuitive enough. So many people instead spend all their
energy trying to beat the market and earn the highest investment return possible. Let me know
in the comments below if you’ve also chased after the high investment returns. I’ve spent too many
hours of my life in the past on this endeavor and would like to know that I’m around fellow kindred
spirits. That’s why so many books are dedicated to trying to understand Buffett's investing methods,
but hardly any of them highlight the most obvious secret to his success - time. The main takeaway
here is that you need to resist the urge to devote all your efforts to trying to beat the market.
Trying to find the right stock or the right mutual fund. You end up dancing in and out of the market,
chasing after the latest investment fads. If you happen to be one of the few in the world that can
have consistent high returns like Mr. Warren Buffet, kudos to you. But, a mere mortal and
a Sandwich Generation like me, I’d prefer to let time do the heavy lifting and spend my energy on
other more important things in life such as my family and the people I love. Good investing is
about earning pretty good returns at a low cost that you can stick with for a long period of
time. It’s not about earning the highest returns, because high returns are like one-time Broadway
hits that can’t be repeated consistently. Allow time to do it’s magic. If you want to know more
about my favorite investment that I plan to hold onto forever, check out my video about VTSAX here.
Thank you guys for watching. If you found value from this video, please hit the like button,
leave a comment and subscribe to the channel so that you don't miss out on any of my other
upcoming videos. I firmly believe that being part of the Sandwich Generation doesn't have
to mean financial stress. With careful planning and preparation, we can thrive during this stage
of life. Help me spread the knowledge. Thank you again and I'll see you in my next video.