The Garrulous Jay – Einstein A No-No

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Albert Einstein famously said that “compound interest is the eighth wonder of the world: he who understands it earns it; he who doesn’t pays it”.

Except he probably didn’t. This oft-cited quotation, beloved of financial advisers and wealth managers the world over, seems not to have originated with the world’s most famous scientist at all.

In fact, the website states, “The earliest close match located by QI appeared in an advertisement for The Equity Savings & Loan Company published in the “Cleveland Plain Dealer” of Ohio in 1925. No attribution was specified.” Source: Quote Investigator®. The Eighth Wonder of the World Is Compound Interest. Garson O’Toole.

I think this raises a couple of interesting points.

First, question everything and take nothing for granted. Nowhere is this more important than in the world of financial services and investing, which is replete with jargon, arcane terminology and an entire lexicon of old sayings and wise aphorisms.

Second, perhaps we can learn something about the people who use the infamous Einstein quote from their wish to call upon his alleged words of wisdom.

I divide them into three groups under the following actions:
•    Association – those who think citing one of the world’s most famous scientists will reflect well upon them and lend credibility to their own pronouncements
•    Attribution – those who think pointing out that Einstein made such a statement means it must be worthy of consideration and form a sensible basis for action
•    Abdication – those who lack the conviction they need to convey their arguments forcefully without the support of nuclear physicist as back-up.

In fairness, there’s probably a fourth constituency who just want to grab people’s attention with a pithy quote.

On the first point, I always encourage my clients to question anything and everything that I discuss with them. “There’s no such thing as a stupid question” probably wasn’t an Einstein quote either, but I absolutely believe it to be true.

On the second, next time you hear someone using a smart quotation ask yourself why they’re doing it and what that might say about them.

PS – Compound interest is absolutely key to investing, but that’s a subject for another Jay.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.