Every investor has heard this quote at least once in their career: “Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pays it," is a quote often attributed to Albert Einstein.
In this episode of Stocks In Translation, Yahoo Finance markets and data editor Jared Blikre and producer Sydnee Fried welcome Raoul Pal, co-founder and CEO of Real Vision. Pal brings 20 years of global macro-investing experience to the table as the team dives into the power of compounding.
This episode's word of the day is, of course, "compounding" — the process where “growth builds on previous growth, accelerating exponentially over time. Whether it's money, knowledge, or resources, compounding creates increasingly larger results.”
Pal highlights bitcoin (BTC-USD) as a prime example of compounding in action: “The greatest living example of all of this is probably, outside of viruses and biological things... bitcoin,” he says. “Bitcoin came out, whatever, 12 years ago, essentially started trading. It’s up 105,000,000%... But that’s the power of compounding. It’s an asset that essentially goes up on average 150% a year, even with three negative 80% drawdowns.”
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If you're worried you’ve missed the bitcoin train, don’t be. Bitcoin is part of blockchain technology, which is being adopted at “twice the speed of the internet.” Right now, blockchain is a $3 trillion space. However, by 2034, it is forecast to “extrapolate to a hundred trillion-dollar asset class, in line with other major asset classes.” Pal continues, “That’s $3 trillion to $100 trillion. So we’re only 3% of the way there. If this plays out, it would be the largest, fastest accumulation of wealth in all of human history.”
Watch the full interview above to learn more about the ins and outs of compounding, how to navigate markets with it in mind, and how to make compounding work for you.
Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your favorite streaming service.
This post was written by John Tejada.