What Is Compound Interest?
Compound interest is growth on top of growth. You earn returns on your money, and then those returns also start earning returns. Over many years, it snowballs.
A simple example
You invest $1,000 and earn 7% a year. After year one you have $1,070. In year two, you earn 7% on $1,070, not just on $1,000. After 10 years you have about $1,967. After 30 years, about $7,600, without adding a single extra dollar.
The rule of 72
Divide 72 by the yearly return to see roughly how many years it takes to double your money. At 7%, it takes about 10 years. At 10%, about 7 years.
Why starting early matters so much
Time is the biggest ingredient. Someone who starts investing at 25 can end up with far more than someone who starts at 35, even if the late starter puts in more money. The last years of growth are the biggest.
Compounding in stocks
Stocks compound when companies grow their profit and when you reinvest dividends to buy more shares. Low fees matter, because fees compound against you.