While there’s no evidence that Albert Einstein uttered the quip long associated with him about compound returns as the “8th Wonder of the World,” it’s not unreasonable to imagine the genius wit saying something just like that. When it comes to savings, compounding has wondrous qualities that become magical over time.
That’s why the patient investor can combine prudence with time to become a well-to-do retiree. As investor Barry Ritholtz pointed out in his recently released book How Not To Invest, compounding easily papers over a multitude of investment errors, including a propensity to buy at the top of every market. What Ritholtz found via empirical study is that over long stretches of time, the returns enjoyed by the investor prone to buy just ahead of market declines and corrections does almost as well as the proverbial unicorn who routinely buys at market lows. Such is the genius of buying and holding through market downs and ups.
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