Expert Advice

Growing Money Tax-Free

Professor Burton Malkiel of the Rebalance Investment Committee on how compounding helps grow your money tax free.

Burt Malkiel: Albert Einstein once called compound interest the greatest force in the world. And let me just sort of give you a little illustration. We often say that those who sold Manhattan for $20 really got rooked. What if, instead, they had taken that money and invested it at 6% a year? They could now buy back most of the improved real estate in Manhattan. And that’s the idea.

What compound interest means is that the interest that you earned also earns interest, and the way that money can grow is just staggering. It’s a marvelous force. And the government gives you, through IRAs, through 401(k)s, through Sep IRAs, a way to do it tax-free. And it’s just a horrible shame that many people are not availing themselves of the opportunities that the government gives you to do that. With tax-free compounding, this is an absolute winner’s game.