Compound interest, visualised
Why starting ten years earlier can matter more than investing twice as much — illustrated with simple numbers.
Marcus Bell2 min read
Compound interest is interest on interest. In year one, you earn a return on what you put in. In year two, you earn a return on that plus last year's return. The effect is slow, then sudden.
Two savers
Alex invests 200 a month from age 25 to 35, then stops — 24,000 in total. Sam invests 200 a month from 35 to 65 — 72,000 in total. Assume a 6% annual return for both.
At 65, Alex has about 230,000. Sam has about 200,000. Alex contributed a third as much and ended up with more, because Alex's money had thirty extra years to compound.
Time
The single biggest lever. Each extra decade roughly doubles the end result at typical long-run returns.
Rate
Small differences compound too — which is why fees matter. 6% versus 5% over 40 years is about a 45% larger pot.
Consistency
Regular contributions smooth out bad timing. Automating them removes the temptation to wait for a "better" moment.
The rule of 72
Divide 72 by your annual return to estimate how many years it takes to double your money. At 6%, roughly 12 years; at 8%, roughly 9. It is a handy way to sanity-check any claim you see.
If you prefer to see it worked through on a whiteboard, this short lesson is excellent:
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