### Compound Interest Cheatsheet #### Key Concepts from Charlie Munger 1. **Definition** - **Compound Interest**: The process where the value of an investment increases because the earnings on an investment, both capital gains and interest, earn interest as time passes. 2. **Principles of Compound Interest** - **Time**: The longer you let your investment grow, the more you benefit from compound interest. - **Rate of Return**: Higher rates of return significantly increase the effects of compounding. - **Reinvestment**: Continuously reinvesting earnings accelerates the growth of your investment. 3. **Quotes and Applications** - **Patience**: "Resist the natural human bias to act." (Charlie Munger) - **Application**: Allow investments to grow over time without frequent interference. - **Decisiveness**: "When proper circumstances present themselves, act with decisiveness and conviction." - **Application**: Make well-informed investment decisions and stick with them. - **Opportunity**: "Opportunity meeting the prepared mind: that's the game." - **Application**: Be prepared to take advantage of compounding opportunities when they arise. 4. **Mathematical Formula** - **Compound Interest Formula**: $( A = P (1 + \frac{r}{n})^{nt} )$ - \( A \) = the future value of the investment/loan, including interest - \( P \) = the principal investment amount - \( r \) = the annual interest rate (decimal) - \( n \) = the number of times that interest is compounded per year - \( t \) = the number of years the money is invested or borrowed for #### Practical Tips - **Start Early**: The earlier you start investing, the more you benefit from compounding. - **Consistent Contributions**: Regularly add to your investments to maximize growth. - **Avoid Withdrawals**: Keep your investments intact to benefit fully from compounding. --- **Tags**: #finance #investment #compound-interest #charlie-munger [[060124 75423 The Richest Man in Babylon Supply and Demand Cheatsheet]]