Growth on growth
Compounding means your returns earn returns. In year one, $1,000 at 10% earns $100. In year two it earns $110, because the first $100 is now working too. Over decades, the growth on growth becomes most of the total.
Future value = starting amount x (1 + annual rate)^years
The rule of 72
Divide 72 by the annual return to estimate how many years it takes to double:
| Annual return | Years to double |
|---|---|
| 4% | 18 |
| 7% | about 10 |
| 10% | about 7 |
| 12% | 6 |
Starting early
Investor A puts in $5,000 a year from age 25 to 35, then stops. Investor B puts in $5,000 a year from 35 to 65. At 8% a year, A ends at 65 with about $730,000 from $50,000 invested; B ends with about $570,000 from $150,000 invested. The extra decade of compounding beats three times the money.
What slows compounding
- Fees: see Expense ratios and fund fees.
- Taxes on frequent selling: see Capital gains tax on investments.
- Large losses: see Maximum drawdown and Volatility decay.
- Stopping during downturns.
See also
- CAGR (compound annual growth rate) What CAGR means, the formula for compound annual growth rate, a worked example, and why it differs from the average annual return.
- Dollar-cost averaging vs lump sum Dollar-cost averaging compared with investing a lump sum at once: what the historical evidence shows, and when spreading purchases out still makes sense.
- Expense ratios and fund fees What an expense ratio is, how fund fees are charged, how much a 1% fee costs over decades, and typical expense ratios for index and leveraged ETFs.
- Investor or trader The difference between investing and trading, why most individuals do better as long-term owners, and how costs, taxes and time favour patience.
Pages that link here: Building your investing knowledge, Investing FAQ
Last updated September 30, 2026. Education only, not investment advice.