Compound interest is interest earned on interest. When your returns stay invested, they generate their own returns, so your balance grows not in a straight line but along a curve that steepens over time.
Time is the multiplier. At a 7% average annual return, money roughly doubles every ten years. Start at 25 instead of 35, and the difference in your ending balance can be two or three times, even with identical monthly contributions.
The practical takeaway: start as early as you can, reinvest dividends and interest automatically, and avoid interrupting the process by cashing out during downturns.
Key takeaways
- Returns earn their own returns over time
- Starting ten years earlier can multiply the outcome
- Reinvesting and staying invested keep the engine running
