For as long as I can remember, compound interest has been at the center of my own investment thinking. The opening words in the very first chapter of my very first book were: "The Magic of Compounding. 'The greatest mathematical discovery of all time' is how Albert Einstein described compound interest ... the value of $1,000 invested in stocks in 1872 would have grown to $27,710,000 in 1992 [when the book was published and the historical rate of return on stocks was 8.8%] ... the magic of compounding writ large."Since a comfortable retirement is the principal objective of nearly all U.S. families, in my book, "The Battle for the Soul of Capitalism," I use a 65-year time horizon, one that assumes a 45-year working career (to age 65) and a further 20 years of life (to age 85) based on today's actuarial tables: "$1,000 invested at the outset of the period, earning an assumed annual return of, say, 8% would have a final value of $148,780—the magic of compounding returns."The principles of sensible savings and investing are time-tested, perhaps even eternal. The way to wealth, it turns out, is to avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today's financial service system and rely on the magic of compounding returns. While the interests of the business are served by the aphorism "Don't just stand there. Do something!" the interests of investors are served by an approach that is its diametrical opposite: "Don't do something. Just stand there!"
Source: CNBC