The eighth wonder, quantified
Compound interest is interest earning interest. In year one the effect is invisible; by year twenty it dominates. In the default example above — $5,000 to start, $500 a month, 7% — the account crosses roughly $415,000 in 25 years, and well over a third of it is money the money made, not money you deposited. The curve on our cover chart isn't decoration; it's the actual shape of the math.
Time in the market beats timing the market — because compounding needs runway more than it needs brilliance.The Ledger
Why starting early beats starting big
Consider two savers earning 7%: Ana invests $300/month from age 25 to 35 and then stops — ten years, $36,000 total. Ben starts at 35 and invests $300/month until 65 — thirty years, $108,000 total. At 65, Ana's account is worth roughly the same as Ben's, despite contributing a third as much. Her money simply had more years to compound. Whatever your age, the second-best time to start is this month.
What return should you plug in?
| Scenario | Annual return to model |
|---|---|
| High-yield savings account | 3–4.5% |
| Conservative bond-heavy portfolio | 4–5% |
| Balanced 60/40 portfolio | 5–7% |
| Broad stock index (historic, after inflation) | ~7% |
| Broad stock index (historic, nominal) | ~10% |
Serious planners run the projection at two or three rates and treat the range — not any single number — as the answer. Past performance never guarantees future results.
The order of operations
Compounding only works on money that isn't leaking away elsewhere. The standard sequence: build a starter emergency fund, kill any high-APR debt (paying off a 24% card is a guaranteed 24% return — check the payoff calculator), capture any employer 401(k) match, then invest the rest consistently. Boring, repeatable, and historically very hard to beat.
Divide 72 by your annual return to estimate the years needed to double your money. At 7%, money doubles roughly every 10 years; at 10%, every 7.2 years.