The Magic of Compounding

Compounding is interest earning interest. When the returns your money generates are themselves reinvested, growth becomes exponential rather than linear.

If you invest $1,000 at 8% per year, after one year you have $1,080. The next year you earn 8% on $1,080, not on $1,000. After 30 years that single deposit becomes about $10,062 — without you adding a single dollar.

The lesson: starting early beats picking the perfect investment. Ten years of waiting can cost more than a percentage point of return.