By
Borsgade
At this presentation hosted at YPO Delhi, Mohnish Pabrai illustrates the power of compounding to his daughter during a late-night drive. Using her $5,000 summer internship savings as an example, he explains how investing it in an IRA with a 15% annual return could grow to $5 million by age 68.
Mohnish highlights the importance of starting early to maximize wealth, as small investments can grow significantly over time. His daughter comprehends that compounding’s exponential growth is key to long-term financial success.
People often have difficulty with the concept of compounding because it’s not linear; it’s basically on a log scale. We don’t normally think in a log scale, but it’s really important to understand and think in those terms. […]
You’re 18 now, and from 18 to 68, that’s 50 years. If the money doubles every 5 years, you’ll have 10 doubles by the time you’re 68. Ten doubles is a magical number—1,000. So, by the time you’re 68, that $5,000 will have turned into $5 million. And let’s say you do another internship when you’re 19 and save another $5,000 or $6,000. That could add another $5 or $6 million.
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