Compound interest is like a snowball rolling downhill.
It’s not just about earning on your original investment – it’s about earning on the interest too.
In simple terms: your returns start earning returns!
How it works:
Let’s say you invest £1,000 and earn a 5% return. After a year, you’ve got £1,050.
But here’s the magic – in year two, you earn 5% on £1,050, not just the original £1,000.
Give it enough time, and that small difference really adds up.
Why it works:
The earlier you start, the longer your money has to grow.
This is why they say “time in the market” beats “timing the market.”
Bonus tip: Ever heard of the Rule of 72?
It’s a quick way to estimate how long it’ll take to double your money.
Just divide 72 by your annual return rate.
For example:
At 4% growth per year → 72 / 4 = 18 years to double
At 8% → 72 / 8 = just 9 years!
That’s the power of compounding in action.