How Compound Interest Works - and Why Starting Early Is the Whole Game
Here's the idea: when you earn a return on money, then earn a return on that return, and then earn a return on all of it together - that's compound growth. Your money earns money. Then that new money earns money. The cycle accelerates over time, and the longer it runs, the more powerful it becomes.
The Mechanics
Start with $10,000. Assume 7% annual return - roughly the historical average real return of the US stock market after inflation.
The Rule of 72
Divide 72 by your annual rate of return to get the approximate years it takes to double your money.
Why Starting Early Is the Whole Game
Jordan is 24 and starts $500/month. His friend gets the same salary but waits until 32. Both earn 7% annually and invest until 65.
The Invisible Cost of Waiting
At 25, the $500 you invest this month will be worth roughly $10,800 at age 65 (at 7%). At 35, that same $500 invested this month will be worth about $5,400. Every month you delay, the future value of your contributions shrinks.
The bottom line
The clock is always running. Starting early is an advantage that genuinely cannot be recovered once it's lost.
What would you do?
Jordan starts investing $500/month at 22. His friend waits until 32. Both earn 7% annually and invest until 65.
Your Move
Open the Roth IRA Calculator on this page. Enter your current age and $500/month at 7%. Then change your age to 10 years older and run it again. Look at the difference. That gap is the cost of waiting.
Sources
- U.S. Securities and Exchange Commission (Investor.gov), Compound Interest
How compound interest works
Educational information only. Not financial, tax, or legal advice or a recommendation. Figures are drawn from the primary sources cited above; verify current amounts with the source before acting.
Educational content only. Not financial, tax, or legal advice. Consult a qualified professional before making decisions based on your specific circumstances.
Last reviewed: April 2026