Ben Franklin Says Money Begets Money

Benjamin Franklin started as a poor printer's apprentice and ended up one of the wealthiest Americans of his time. Moreover, he believed in the power of compounding just as much as any investor of today. He wrote:

Money is of a prolific generating Nature. Money can beget Money, and its Offspring can beget more.
— Benjamin Franklin

Even investors with very little money can benefit from compounding. Were you to set aside just $100 every month, and earn just five per cent in real returns per year for 25 years, you might be surprised by the result.

For every dollar you save during that period, you would also have earned nearly another dollar in returns. Your account would hold roughly $58,000, including about $30,000 of contributions (those monthly $100 deposits) and $28,000 provided by growth.

And this rate of return is entirely attainable. For example, the S&P 500 has delivered an average annual real return of 6.47% since 1957.

Healthy businesses are compound-interest machines.
— Edgar Lawrence Smith

Smith’s phrase comes from his book Common Stocks as Long-Term Investments, which he published in 1924. He had sat down, he said, to write a pamphlet on why bonds were better investments than stocks, but found the evidence pointed to the opposite conclusion. You can still buy Smith's book at the link.

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