I was watching a documentary on Warren Buffet on HBO last night and it occured to me how talented Omaha’s beloved billionaire is at distilling hugely-complicated businesses ideas into the most simple and salient terms imagineable. One notion in particular that stood out to me was Mr. Buffet’s continued allusion to “compounded interest.”
“My wealth has come from a combination of living in America, some lucky genes, and compound interest.” – Warren Buffett
What is Compound Interest?
Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Thought to have originated in 17th-century Italy, compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount. The rate at which compound interest accrues depends on the frequency of compounding; the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on $100 compounded at 10% annually will be lower than that on $100 compounded at 5% semi-annually over the same time period.
Comound Interest for Digital Marketing
Compound Interest for Digital Marketing is similar to finance.