Compound interest is like a snowball rolling down a hill – it starts small but grows exponentially as it picks up more snow along the way. As Einstein said “It is the “8th Wonder of the World”!
You earn returns on your returns The magic happens because you’re not just earning money on your original investment – you’re earning money on all the gains you’ve already made. If you invest $1,000 and it grows 10% to $1,100, the next year you earn 10% on the full $1,100, not just your original $1,000. Those extra earnings start earning their own earnings.
Time is your superpower as a young investor Starting early is incredibly powerful. Someone who invests $5,000 a year from age 25 to 35 (just $50,000 total) and then stops will likely end up with more money at retirement than someone who invests $5,000 a year from age 35 to 65 ($150,000 total) – assuming the same returns. Those extra 10 years of compounding make an enormous difference.
Small differences compound into huge outcomes The difference between 7% and 10% annual returns might not sound like much, but over 30 years on a $10,000 investment, it’s the difference between $76,000 and $174,000. The math becomes exponential, not linear.
It works while you sleep Once you invest, compound growth happens automatically. You don’t need to actively work for these gains – your money is working for you, 24/7, year after year.
The numbers get wild in the later years In year 1, you might earn $700 on a $10,000 investment. But in year 30, you might earn $12,000 in a single year on that same original investment. The gains in the final years often dwarf everything you earned in the early years combined.
The key insight: every year you wait to start investing costs you far more than just that year’s contribution – it costs you decades of compound growth on that money.