Compound interest means your returns generate further returns. It sounds unremarkable, but over long periods it creates differences worth millions.
A concrete example
You invest $300 a month with an average annual return of 7%:
| Investment period | Total contributed | Portfolio value |
|---|---|---|
| 10 years | $36,000 | approx. $52,000 |
| 20 years | $72,000 | approx. $156,000 |
| 30 years | $108,000 | approx. $366,000 |
| 40 years | $144,000 | approx. $787,000 |
Notice: between year 30 and year 40 you contribute the same $36,000 as in the first decade, but the portfolio grows by more than $400,000. The final years work the hardest.
What this means for you
- Start as early as possible — every year of delay costs you a fortune at the end.
- Don't interrupt your investing — withdrawals halfway reset the snowball.
- Watch your fees — the difference between 0.2% and 2% a year adds up to hundreds of thousands over 30 years.
The rule of 72: divide 72 by your annual return to see how many years it takes your money to double. At 7% it's roughly every 10 years.