Compound interest is interest earning interest — the most powerful force in finance. Albert Einstein allegedly called it the eighth wonder of the world. With simple interest, $10,000 at 10% earns $1,000 every year. With compound interest, year one earns $1,000, year two earns $1,100 (10% on $11,000), year three earns $1,210, and so on — accelerating growth.
The Rule of 72: divide 72 by the interest rate to estimate how many years it takes to double your money. At 8% return, money doubles in 9 years. At 12%, in 6 years. $10,000 invested at 12% compounding becomes $10 million in 60 years. This is why starting to invest early matters enormously — time is the secret ingredient in compounding.
Warren Buffett earned 99% of his $100+ billion wealth after age 50 — that is compounding at work. His partner Charlie Munger said the first rule of compounding is to never interrupt it unnecessarily. Compounding works against you with debt — a credit card at 24% interest doubles the balance in just 3 years if unpaid.