Making Investments Work Harder

Albert Einstein has called compound interest the eighth wonder of the world.

And like other things, about compound interest too, he was not wrong. In his book “One Up On Wall Street”, legendary Fidelity fund manager Peter Lynch, narrates a story. About the native (Red) Indians of Manhattan, who way back in 1625 sold all their real estate to a group of immigrants forget this – all of $24. Yes – real estate in Manhattan that is currently worth crores of rupees was sold for what in rupee terms is around Rs. 1,500!! And hence, ever since then, these Indians have been the subject of cruel jokes – but as it turns out that they may have made a better deal than the buyers who got the island. At 8% interest on $24 compounded over all those years, the Indians would have built up a net worth just short $30 trillion, while the latest tax records from the Borough of Manhattan show the real estate to be worth only $28.1 billion. Give Manhattan the benefit of doubt: That $28.1 billion is the assessed value, and for all anybody knows, it may be worth twice that on the open market. So, Manhattan’s worth $56.2 billion. Either way, the Indians could be ahead by $29 trillion and change.

This little story shows you the power of compounding and the points out the fact that the earlier you start investing the better it gets.