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Investing
Compound Interest — The 8th Wonder
Discover how money grows exponentially over time and why starting early is everything.
7 min read Earn 80 XP 4 sections
1
Simple vs Compound Interest
Simple interest earns on your principal only. Compound interest earns on your principal *plus* your previously earned interest — growth that feeds on itself.
2
The math made simple
Formula: A = P(1 + r/n)^(nt)
Where P = principal, r = annual rate, n = times compounded per year, t = years.
At 7% annual return, money roughly doubles every 10 years (the Rule of 72: 72 ÷ 7 ≈ 10).
Where P = principal, r = annual rate, n = times compounded per year, t = years.
At 7% annual return, money roughly doubles every 10 years (the Rule of 72: 72 ÷ 7 ≈ 10).
Example
$1,000 invested at 10% for 30 years = $17,449. The same $1,000 at simple interest = $4,000. Compounding made 4× more money.
3
Why age is your superpower
A 16-year-old investing $100/month at 8% until age 65 ends up with ~$520,000.
A 30-year-old doing the same ends up with ~$170,000.
Same monthly investment. 14 fewer years. $350,000 difference.
A 30-year-old doing the same ends up with ~$170,000.
Same monthly investment. 14 fewer years. $350,000 difference.
You don't need to be rich. You need to be early.
4
Where to find it
Compound growth appears in: savings accounts, index funds, retirement accounts (Roth IRA, 401k), dividend reinvestment. It also works against you in credit card debt — which is why high-interest debt is the first thing to pay off.
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