Albert Einstein called compound interest the 8th wonder of the world. It’s one of the most powerful tools for wealth-building—especially when you start early.
What Is Compound Interest?
Compound interest is interest earned on both your original investment and the interest that investment already earned. It’s essentially “interest on interest.”
Simple Example:
Invest $1,000 at 8% annual return:
- After 1 year: $1,080
- After 5 years: $1,469
- After 20 years: $4,661
Now imagine if you added $100/month starting at age 25. By retirement at 65, you’d have over $350,000—and that’s from just $48,000 in contributions.
Time Is More Important Than Amount
Starting earlier—even with smaller amounts—yields better results than waiting until you have more to invest.
How to Maximize Compound Interest:
- Start now: Even small amounts count.
- Stay consistent: Automate monthly contributions.
- Reinvest earnings: Don’t withdraw dividends or gains.
- Avoid high fees: Choose low-cost index funds or ETFs.
Compound interest turns time into your greatest asset. The earlier you begin, the less you need to contribute to hit your goals.
