Albert Einstein once marveled that compound interest is the world’s eighth wonder. Those who truly understand it can benefit from it, while the ignorant will eventually pay the price.
Looking at the life trajectory of stock legend Warren Buffett, he was born in 1930 during the Great Depression in the United States. Fast forward to 1996—by then he had just turned 66. At an age when most Americans have long since settled into their retirement years, he had already accumulated an astonishing fortune of $17 billion, undoubtedly making him a standout among his peers. Yet this legendary figure neither chose an easy retirement nor made a major transfer of his core assets into conventional low-risk areas like bank deposits or bonds. Instead, he continued to let the vast majority of his funds ride the waves in the stock market.
Twenty-nine years later, in 2025, at age 95, Buffett’s net worth surged to a jaw-dropping $150 billion. This also means that roughly 90% of the wealth he has in his hands was generated in the 29 years after he turned 66. During those years, even though his average annual wealth growth rate of 7.8% did not surpass the 9.6% performance of the S&P 500 index fund over the same period, he still easily outperformed bonds with returns of only 4% and bank deposits with returns of just 3%. Buffett’s history of asset multiplication perfectly illustrates the incredible power of compound interest.
This year marks my 21st year in the workforce. When I reflect on how my own assets have changed over time, I’ve found a highly similar pattern. Specifically, more than 55% of our family’s wealth was accumulated in the most recent 3 years. Stretch that to the past 6 years, and the proportion reaches 75% or more. And if we go back 12 years, it has created 90% or more of the family’s wealth.
Suppose I continue working until I retire at 65, and assume that at that time the family’s total assets are A. Since most of my current assets are stock index funds, and I intend to keep following a fully invested allocation strategy in stock index funds going forward, I estimate that the annualized return of the entire portfolio can still remain around 11%. Meanwhile, based on the annual reports released by the Social Security Administration (SSA), after retirement we can receive about $100,000 per year in Social Security benefits. To cover the shortfall in everyday expenses, the amount we would need to withdraw each year from our individual retirement accounts should not exceed 1% of total assets. Therefore, I conclude that after age 65, the family’s net-asset average annual growth rate will likely stay around 9%.
With those assumptions, when I live to 90, the formula for net assets will be: A x 1.1^25 = A x 10.8 (here we should clarify that “^” represents the exponentiation function). That means that by then, I can proudly say that 91% of my wealth (equal to 9.8A ÷ 10.8A) was generated after age 65.
If I’m lucky enough to live to 95, my net assets would become: A x 1.1^30 = A x 17.4. In that case, the portion of wealth created after age 65 would be as high as 94% (equal to 16.4A ÷ 17.4A). This is the compound-interest magic I’ve personally experienced!
I strongly believe this to be true. As long as I strictly follow my investment discipline, take the most straightforward approach to regularly invest in and hold a few stock index funds for the long term, there is absolutely no need to pursue flashy trading techniques or spend energy searching for other investment targets. That alone is enough to beat more than 95% of participants in the market, and then accumulate a fairly substantial nest egg.
I’m very much looking forward to having friends support my continued creation through subscribing to my membership service. I will frequently post in-depth articles exclusively for members, and you can also message me anytime to ask any questions you may have about investment and personal finance. The subscription link is: https://x.com/SVScholar/creator-subscriptions/subscribe
If you’re interested in exploring my financial philosophy and hands-on experience further, you’re welcome to visit the Amazon website or Google Play Books, search for my Chinese book 《Wealth Shortcut》, or check out the English version 《The Shortcut to Wealth: Your Simple Roadmap to Financial Independence》. There are also related purchase links in my pinned post.
#FinancialFreedom #WealthFreedom #Finance #PersonalFinance #USStocks #USA #Stocks #Funds #Investing #Nasdaq #VGT #AI #SMH
Looking at the life trajectory of stock legend Warren Buffett, he was born in 1930 during the Great Depression in the United States. Fast forward to 1996—by then he had just turned 66. At an age when most Americans have long since settled into their retirement years, he had already accumulated an astonishing fortune of $17 billion, undoubtedly making him a standout among his peers. Yet this legendary figure neither chose an easy retirement nor made a major transfer of his core assets into conventional low-risk areas like bank deposits or bonds. Instead, he continued to let the vast majority of his funds ride the waves in the stock market.
Twenty-nine years later, in 2025, at age 95, Buffett’s net worth surged to a jaw-dropping $150 billion. This also means that roughly 90% of the wealth he has in his hands was generated in the 29 years after he turned 66. During those years, even though his average annual wealth growth rate of 7.8% did not surpass the 9.6% performance of the S&P 500 index fund over the same period, he still easily outperformed bonds with returns of only 4% and bank deposits with returns of just 3%. Buffett’s history of asset multiplication perfectly illustrates the incredible power of compound interest.
This year marks my 21st year in the workforce. When I reflect on how my own assets have changed over time, I’ve found a highly similar pattern. Specifically, more than 55% of our family’s wealth was accumulated in the most recent 3 years. Stretch that to the past 6 years, and the proportion reaches 75% or more. And if we go back 12 years, it has created 90% or more of the family’s wealth.
Suppose I continue working until I retire at 65, and assume that at that time the family’s total assets are A. Since most of my current assets are stock index funds, and I intend to keep following a fully invested allocation strategy in stock index funds going forward, I estimate that the annualized return of the entire portfolio can still remain around 11%. Meanwhile, based on the annual reports released by the Social Security Administration (SSA), after retirement we can receive about $100,000 per year in Social Security benefits. To cover the shortfall in everyday expenses, the amount we would need to withdraw each year from our individual retirement accounts should not exceed 1% of total assets. Therefore, I conclude that after age 65, the family’s net-asset average annual growth rate will likely stay around 9%.
With those assumptions, when I live to 90, the formula for net assets will be: A x 1.1^25 = A x 10.8 (here we should clarify that “^” represents the exponentiation function). That means that by then, I can proudly say that 91% of my wealth (equal to 9.8A ÷ 10.8A) was generated after age 65.
If I’m lucky enough to live to 95, my net assets would become: A x 1.1^30 = A x 17.4. In that case, the portion of wealth created after age 65 would be as high as 94% (equal to 16.4A ÷ 17.4A). This is the compound-interest magic I’ve personally experienced!
I strongly believe this to be true. As long as I strictly follow my investment discipline, take the most straightforward approach to regularly invest in and hold a few stock index funds for the long term, there is absolutely no need to pursue flashy trading techniques or spend energy searching for other investment targets. That alone is enough to beat more than 95% of participants in the market, and then accumulate a fairly substantial nest egg.
I’m very much looking forward to having friends support my continued creation through subscribing to my membership service. I will frequently post in-depth articles exclusively for members, and you can also message me anytime to ask any questions you may have about investment and personal finance. The subscription link is: https://x.com/SVScholar/creator-subscriptions/subscribe
If you’re interested in exploring my financial philosophy and hands-on experience further, you’re welcome to visit the Amazon website or Google Play Books, search for my Chinese book 《Wealth Shortcut》, or check out the English version 《The Shortcut to Wealth: Your Simple Roadmap to Financial Independence》. There are also related purchase links in my pinned post.
#FinancialFreedom #WealthFreedom #Finance #PersonalFinance #USStocks #USA #Stocks #Funds #Investing #Nasdaq #VGT #AI #SMH