Compound interest is the mechanism by which wealth grows exponentially over time.
If you invest $1,000 at a 10% annual return, you earn $100 in the first year. In the second year, you don’t just earn 10% on your initial $1,000—you earn 10% on $1,100, which equals $110.
Rule of 72
A quick way to estimate compound interest is the Rule of 72. Divide 72 by your expected annual interest rate to find out how many years it will take for your money to double. For example, at a 7% return, your money doubles approximately every 10 years (72 ÷ 7 ≈ 10.2).