Compound Interest
Compound interest means your returns are earned on both your original money and on past returns. Over long periods, this creates accelerating growth.
Why this matters
Compounding is one of the biggest drivers of long-term wealth. Time and consistency often matter more than finding one perfect trade.
Simple example
If $10,000 grows at 8% per year, year-1 gain is $800. In year 2, growth applies to $10,800, not just the original $10,000.
Common mistakes
- Underestimating how much time matters in compounding.
- Withdrawing too early and breaking the compounding cycle.
- Confusing nominal growth with inflation-adjusted (real) growth.