Compound Interest: The Quiet Superpower
Compound interest is the most under-appreciated force in personal finance. Albert Einstein didn't actually call it the eighth wonder of the world (sorry), but the math really is wonderful.
The example everyone should see
Two friends, both retiring at 65:
- Anna invests $300/month from age 25 to 35 (10 years), then stops contributing. Total invested: $36,000.
- Ben waits until 35, then invests $300/month every month until 65 (30 years). Total invested: $108,000.
At 7% returns, Anna ends with roughly $340,000. Ben ends with about $355,000. Ben invested three times as much money — and the gap is only $15,000. Time in the market is doing all the work.
Why the curve bends so hard
Each year of returns gets calculated on top of all the previous years of returns. That's what "compounding" means. After 30 years, your money roughly doubles every 10 years at 7%. Skip the first 10 years, and you skip the most productive decade — the one where your future growth is multiplied by every subsequent year of compounding.
What to do about it
Save something — anything — as early as you can. A workplace 401(k) match is the easiest free money on the planet. Once you've captured the match, automate a Roth IRA contribution. Use our Compound Interest Calculator to see what your own numbers look like.