Albert Einstein allegedly called compound interest the eighth wonder of the world. It's the most powerful force in wealth building, and understanding it can transform your financial future.
What is Compound Interest?
Compound interest is interest earned on both your principal investment and accumulated interest. It's "interest on interest." The longer your money compounds, the more dramatic the results.
The Power of Time:
- • $10,000 at 7% for 10 years = $19,672
- • $10,000 at 7% for 20 years = $38,697
- • $10,000 at 7% for 30 years = $76,123
- • $10,000 at 7% for 40 years = $149,745
Why Starting Early Matters
The biggest advantage of compound interest is time. Starting at age 25 versus 35 can mean hundreds of thousands of dollars in difference by retirement. Every year you delay costs you exponentially more in future wealth.
How to Maximize Compound Interest
Invest early and consistently. Reinvest dividends. Choose low-cost index funds. Avoid withdrawing early. Let time work for you. The longer your money compounds, the wealthier you become.