Compound Interest

The rule of 72

A useful mental shortcut: divide 72 by the annual return to get the years it takes money to double. At 7%, every ~10 years; at 4%, every 18. It calibrates at a glance what one extra point of return — or of fees — really means.

Why starting early always wins

The classic two-investor example at 7% per year:

• Ana invests €200/month from age 25 to 35 and stops: €24,000 contributed.
• Luis invests €200/month from 35 to 65: €72,000 contributed.

At 65, Ana has about €250,000 and Luis about €227,000. Ana contributed a third of the money and ends up with more, because her first euros had 40 years of curve. The lesson is not "stop at 35": it is that every year of delay costs disproportionately.

The enemies of compounding

The mechanism works both ways. Fees compound against you: an extra 1% per year removes more than 20% of final capital over 30 years. Inflation silently erodes purchasing power. And interruptions — panic selling, taking "a few years off" — break precisely the exponential part of the curve, which is the final one.

Common mistakes

• Underestimating long horizons: human intuition is linear and the curve is not.
• Dismissing small fees because "it's only 1%".
• Withdrawing dividends during the accumulation phase instead of reinvesting them: without reinvestment there is no compounding.