There’s an old adage that “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” And any discussion of investing must start with a simple understanding of compound returns.
Compounding is a miracle that is often difficult to grasp, and it’s at the heart of why we invest at all. Compounding works like this: if you are twenty years old and invest $10,000 today in the S&P 500, which has a recent long-term return of around 10 percent, and you simply leave that money in markets without touching it for forty-five years, over that period your returns on that initial investment will look like the graph in figure 6-1.
FIGURE 6-1
The miracle of compound interest: ...
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