Video Lesson
Prefer watching? This video covers the key concepts from this article.
The Power of Compound Interest
Compound interest is earning interest on your interest. It's the key to long-term wealth building and why starting early matters so much.
What is Compound Interest?
- Earning returns on your returns
- Your money grows exponentially over time
- Einstein called it the eighth wonder
Simple vs Compound Interest
Example: $10,000 at 7% for 30 years
- Simple interest: $31,000
- Compound interest: $76,000
The Rule of 72
Divide 72 by your interest rate to find years to double:
- At 8%, money doubles in 9 years
- At 10%, money doubles in 7.2 years
Time is Your Greatest Asset
Starting early matters more than investing more:
- $200/month from age 25 beats
- $400/month starting at 35
Even though you invested less total!
Maximizing Compound Growth
- Start investing as early as possible
- Reinvest all dividends automatically
- Minimize fees that eat into returns
- Stay invested through market cycles