Life Advice, Career Development, Personal Perspective
The Power of Compound Interest
Albert Einstein purportedly described compounding as the most powerful force in the universe and compound interest as the eighth wonder of the world.
We mostly think of compound interest in the form of finances and growing wealth. And compound interest in that domain is, indeed, quite powerful and important. The crucial aspect of this type of growth is that it relies heavily on time. The more time one has to allow their money to grow at some rate of return (3%, 5%, 8%), the more money they will have at the end of some specified period of time. The earnings that accrue each year (or day, or month, depending on how interest is paid out) adds to the amount the individual invests themselves and also, itself, produces interest and earnings over time.
An example from the investment learning blog grow illustrates how much of a difference 10 years can make: if a person starts saving $5,000/year for their retirement at age 25, they will end up with more than twice as much retirement savings ($1,300,000) by age 65 as someone who waits until 35 to start ($565,000), assuming an 8% rate of return, compounded annually.
So, don't wait to invest in your retirement...even if it is $50 or $100 per month. That adds up over time.
Albert Einstein purportedly described compounding as the most powerful force in the universe and compound interest as the eighth wonder of the world.
We mostly think of compound interest in the form of finances and growing wealth. And compound interest in that domain is, indeed, quite powerful and important. The crucial aspect of this type of growth is that it relies heavily on time. The more time one has to allow their money to grow at some rate of return (3%, 5%, 8%), the more money they will have at the end of some specified period of time. The earnings that accrue each year (or day, or month, depending on how interest is paid out) adds to the amount the individual invests themselves and also, itself, produces interest and earnings over time.
An example from the investment learning blog grow illustrates how much of a difference 10 years can make: if a person starts saving $5,000/year for their retirement at age 25, they will end up with more than twice as much retirement savings ($1,300,000) by age 65 as someone who waits until 35 to start ($565,000), assuming an 8% rate of return, compounded annually.
So, don't wait to invest in your retirement...even if it is $50 or $100 per month. That adds up over time.
Exponential Growth & COVID-19
Time matters so much in the world of compound interest as the growth of money in this case is exponential.
You might have heard a bit about the power of exponential growth as it relates to the spread of COVID-19 within a population. While pure exponential growth is not the best way to model the spread of COVID-19 infections, using it as an example demonstrates the point that, again, time matters when it comes to compounding growth of, in this case, a viral infection.
An example used in the Forbes article linked above nicely illustrates the point of growth in viral spread: if just 1 person is infected on January 1st and the number of infected people doubles every three days (1 person has the ability to infect another in three days time from casual interactions, etc...), 1,024 people will be infected on January 31 (as each newly infected person also infects someone else every 3 days), 2,048 on February 3 (doubling of infections every 3 days), and by March 19th (78 days after the initial infection), 67 million people will be infected! Obviously COVID-19 didn't spread this fast due to various measures to slow the spread but, clearly, exponential growth is scary.
The point here, and that we learned all too well in 2020, is that if one does not intervene early to stop the spread, the growth of viral spread will produce levels of infection that are nearly impossible to deal with barring some major new intervention like a vaccine, which thankfully, is coming in the case of the SARS-CoV-2 virus that causes the disease that is COVID-19.
Another interesting bit of research that resurfaced in the media during the spread of COVID-19 was the concept of exponential growth bias - the fact that most people consistently underestimate how fact value increases exponentially. In fact, an interesting study published in PNAS found that helping individuals better understand how impactful exponential growth can be for COVID-19 transmission led to increased support for measures to slow the spread of the virus.
So, while we may struggle to comprehend exponential growth initially, understanding this process better is critical to taking actions that can affect this type of growth, whether we want to harness it for good (i.e., saving for retirement) or combat its negative effects (viral transmission).
Time matters so much in the world of compound interest as the growth of money in this case is exponential.
You might have heard a bit about the power of exponential growth as it relates to the spread of COVID-19 within a population. While pure exponential growth is not the best way to model the spread of COVID-19 infections, using it as an example demonstrates the point that, again, time matters when it comes to compounding growth of, in this case, a viral infection.
An example used in the Forbes article linked above nicely illustrates the point of growth in viral spread: if just 1 person is infected on January 1st and the number of infected people doubles every three days (1 person has the ability to infect another in three days time from casual interactions, etc...), 1,024 people will be infected on January 31 (as each newly infected person also infects someone else every 3 days), 2,048 on February 3 (doubling of infections every 3 days), and by March 19th (78 days after the initial infection), 67 million people will be infected! Obviously COVID-19 didn't spread this fast due to various measures to slow the spread but, clearly, exponential growth is scary.
The point here, and that we learned all too well in 2020, is that if one does not intervene early to stop the spread, the growth of viral spread will produce levels of infection that are nearly impossible to deal with barring some major new intervention like a vaccine, which thankfully, is coming in the case of the SARS-CoV-2 virus that causes the disease that is COVID-19.
Another interesting bit of research that resurfaced in the media during the spread of COVID-19 was the concept of exponential growth bias - the fact that most people consistently underestimate how fact value increases exponentially. In fact, an interesting study published in PNAS found that helping individuals better understand how impactful exponential growth can be for COVID-19 transmission led to increased support for measures to slow the spread of the virus.
So, while we may struggle to comprehend exponential growth initially, understanding this process better is critical to taking actions that can affect this type of growth, whether we want to harness it for good (i.e., saving for retirement) or combat its negative effects (viral transmission).
Big Things Come from Small Beginnings - Growing Your Professional Presence & Career
What does exponential growth have to do with your career?
Well, I believe we build our expertise and personal brand over time and can experience outsized returns in our careers if we start early and seek out means of increasing our rate of return, which could include:
What does exponential growth have to do with your career?
Well, I believe we build our expertise and personal brand over time and can experience outsized returns in our careers if we start early and seek out means of increasing our rate of return, which could include:
- Publishing your scholarly work (if you are a researcher)
- Building an online brand and presence (via LinkedIn and/or a personal website)
- Sharing your work & expertise via online platforms (LinkedIn posts, articles, or blog posts on other platforms)
- Growing your professional network & reach
- Developing relationships with professionals in your current or desired career field
- Communicating your value, expertise, and story broadly, including learning how to communicate to general audiences
To be continued.....
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