1 What is Compound Growth?
Compound growth is when your earnings start earning their own earnings. It's like a snowball rolling downhill—it picks up more snow and grows faster the longer it rolls.
Simple vs Compound:
Simple growth: You earn interest only on your original money
Compound growth: You earn interest on your money AND on all the interest you've already earned
2 See the Magic in Action
Let's say you invest $1,000 and earn 10% per year:
| Year | Starting Balance | 10% Gain | Ending Balance |
|---|---|---|---|
| 1 | $1,000 | +$100 | $1,100 |
| 2 | $1,100 | +$110 | $1,210 |
| 5 | $1,464 | +$146 | $1,610 |
| 10 | $2,358 | +$236 | $2,594 |
| 30 | $15,863 | +$1,586 | $17,449 |
3 Why Time is Your Best Friend
The longer you invest, the more powerful compounding becomes. Look at the difference starting early makes:
Early Emma (starts at 22)
Invests $200/month for 10 years, then stops
Total invested: $24,000
At age 62: ~$540,000
Late Larry (starts at 32)
Invests $200/month for 30 years straight
Total invested: $72,000
At age 62: ~$400,000
Emma invested 3x LESS money but ended up with MORE because she started 10 years earlier!
4 The Rule of 72 (Quick Math Trick)
Want to know how long it takes to DOUBLE your money? Use the Rule of 72:
72 Ă· Return Rate = Years to Double
At 6% return
12 years
72 Ă· 6 = 12
At 8% return
9 years
72 Ă· 8 = 9
At 10% return
7.2 years
72 Ă· 10 = 7.2
! What Can Hurt Compounding
Withdrawing early
Taking money out stops it from compounding
High fees
Fees eat into your returns and reduce compounding
Waiting to start
Every year you delay is lost compounding time
Key Takeaways
- Compound growth = your gains earning their own gains
- Time is more powerful than the amount you invest
- Starting early beats investing more later
- Rule of 72: divide 72 by return rate to find doubling time