The power of compounding

Compounding is earning returns not just on your original money, but also on the returns it has already generated. Over time this snowballs.

A simple example

Invest 1,000 at 8% a year:

• After year 1 you have 1,080.
• Year 2 earns 8% on 1,080, not 1,000 — so you gain 86.40, reaching 1,166.
• After 30 years, that single 1,000 becomes about 10,060 — ten times your money, with no extra contributions.

Why time is your biggest advantage

Most of compounding's magic happens in the later years, once the base is large. Starting early beats investing more later: a person who invests for 10 years then stops can end up ahead of someone who starts 10 years later and never catches up.

The rule of 72

Divide 72 by your annual return to estimate the years to double your money. At 8%, roughly 72 ÷ 8 = 9 years to double.

What helps it work

• Reinvest dividends and interest instead of spending them.
• Contribute regularly, even small amounts.
• Keep costs low — fees compound against you the same way. See fees and expense ratios.

Compounding rewards patience more than cleverness.