WealthCompound interest (definition)
A concrete example
$10,000 at 7% per year becomes ~$19,700 after 10 years, ~$38,700 after 20 years and ~$76,100 after 30 years. The more time passes, the faster growth accelerates, because each year you earn interest on a larger balance.
The rule of 72
To estimate how long an investment takes to double, divide 72 by the rate: at 7%, about 10 years. Time is the key factor — starting early beats contributing more later. A DRIP amplifies the effect by reinvesting dividends.
Frequently asked questions
What is the rule of 72?
Divide 72 by your rate of return to estimate the years needed to double your money. At 8%, about 9 years.
Why start investing early?
Because compounding rewards time exponentially. A few extra years early often beat larger contributions late.
Does compounding apply to stocks?
The principle applies through reinvested growth and reinvested dividends (DRIP), even though stock returns vary year to year.
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