The Power of Compound Interest: Start Investing Early

Compound interest is often called the eighth wonder of the world. Unlike simple interest, which is calculated only on the principal, compound interest is calculated on both the principal and accumulated interest.

The key to maximizing compound interest is time. The earlier you start investing, the more time your money has to grow. Even small amounts invested regularly can grow significantly over decades.

For example, if you invest $5,000 at age 25 with 7% annual returns and add $200 monthly, by age 65 you'll have over $500,000. If you wait until 35 to start, you'll only have about $240,000. That's the power of starting early.

The rule of 72 is a quick way to estimate how long it takes money to double. Divide 72 by your interest rate. At 7%, money doubles about every 10 years. At 10%, it doubles every 7.2 years.