Why is starting to invest early so important?

Because of compound interest, €10,000 invested at age 25 is worth far more than €10,000 invested at age 35, even at the same rate of return. The 10-year difference at 9%: the capital invested at 25 is worth 2.37 times that invested at 35 by age 65. Every year of delay costs proportionally more than the previous one.

Compound interest and the rule of 72: the magic of time in the markets

Q: What is compound interest?

Compound interest is interest calculated not only on the initial capital but also on the interest already accumulated. In the stock market, this means that one year's gains are reinvested and themselves generate gains the following year. Over the long term, this amplifying effect is exponential — Einstein is said to have called it the 'eighth wonder of the world'.

Q: What is the rule of 72?

The rule of 72 is a rule of thumb that quickly estimates the time needed to double your capital: divide 72 by the annual rate of return. Examples: at 6% → doubling in 72/6 = 12 years. At 9% → doubling in 8 years. At 12% → doubling in 6 years. The rule works for rates between 3 and 20%.

Q: What is the compound interest formula?

Final capital = Initial capital × (1 + rate) ^ number of years. Example: €10,000 at 10% for 20 years = 10,000 × (1.10)^20 = €67,275. With monthly reinvestment of dividends, the formula uses the monthly rate: (1 + rate/12)^(12×years).

Q: How much does compound interest earn over 30 years?

€10,000 invested for 30 years: at 3% (savings account) → €24,273. At 7% (global ETF) → €76,123. At 10% (selective stock picking) → €174,494. At 15% (high-performing small caps) → €662,118. The difference between 3% and 10% is ×7 over 30 years — that is the effect of compound interest on the rate.

What is compound interest?

With simple interest, you earn the same amount each year on your initial capital. With compound interest, the year's interest is added to the capital, and the following year you earn interest on a larger base.

The difference looks minor at first. It becomes enormous over the long term.

A concrete example: €10,000 at 10% for 20 years
Simple interest: 10,000 + (10,000 × 10% × 20) = €30,000
Compound interest: 10,000 × (1.10)^20 = €67,275
The gap is €37,275 — more than the initial capital itself. That is purely the effect of compounding.

The formula

C = C₀ × (1 + r)ⁿ

Where C₀ is the initial capital, r the annual rate and n the number of years. With regular monthly contributions v:

C = C₀ × (1 + r)ⁿ + v × [(1 + r/12)^(12n) − 1] / (r/12)

The rule of 72

The rule of 72 is the most useful mental tool for reasoning about compound interest:

72 ÷ r = years

Annual rate of return

At 9% → doubling in 8.0 years

Comparison: the impact of the rate over 30 years

For €10,000 invested today, with no further contributions:

Rate	10 years	20 years	30 years	Doubling	Equivalent to
3%	€13,439	€18,061	€24,273	24 years	Savings account
5%	€16,289	€26,533	€43,219	14 years	Solid bond fund
8%	€21,589	€46,610	€100,627	9 years	Global ETF
10%	€25,937	€67,275	€174,494	7.2 years	Selective stock picking
15%	€40,456	€163,665	€662,118	4.8 years	High-performing small caps

Compound interest calculator

🧮 Compound interest calculator

Initial capital (€)

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Annual rate (%)

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Final capital—

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Doubling of the initial capital—

The effect of time: starting early vs starting late

The most important rule of compound interest: time is the most powerful variable, ahead of the rate and the amount invested.

Example at 9% annualised, €200/month:

Start at 25 → capital at 65: ≈ €864,000
Start at 35 → capital at 65: ≈ €337,000
Start at 45 → capital at 65: ≈ €124,000

Ten years' delay between ages 25 and 35 costs €527,000. Yet 10 years × 12 months × €200 = only €24,000 of extra contributions. It is the compound interest on those first 30 years that creates the gap.

The enemies of compound interest
Two behaviours break the compounding effect: 1) withdrawing the capital before maturity (exponential growth happens mostly in the final years), 2) paying too much in fees (an extra 0.5% of fees per year over 30 years reduces the final capital by 14%). On ETFs, management fees are the most controllable factor.

Putting compound interest to work in small caps

A well-selected small-cap portfolio at 12% annualised vs an ETF at 8%: over 25 years, the gap is ×2 on the final capital.

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Frequently asked questions

What is compound interest?▾

Interest calculated on the initial capital AND on the interest already accumulated. In the stock market, one year's gains are reinvested and themselves generate gains the following year. Over the long term, the effect is exponential.

What is the rule of 72?▾

Divide 72 by the annual rate of return to estimate the number of years needed to double the capital. At 6% → 12 years. At 9% → 8 years. At 12% → 6 years.

What is the compound interest formula?▾

C = C₀ × (1 + r)^n, where C₀ is the initial capital, r the annual rate and n the number of years. Example: €10,000 at 10% for 20 years = 10,000 × (1.10)^20 = €67,275.

How much does compound interest earn over 30 years?▾

€10,000 over 30 years: at 3% → €24,273. At 7% → €76,123. At 10% → €174,494. At 15% → €662,118. The difference between 3% and 10% is ×7.

Why is starting to invest early crucial?▾

Exponential growth is concentrated in the final years. A 10-year head start at 9% with €200/month represents €527,000 of extra capital at age 65, for only €24,000 of additional contributions. Every year of delay costs proportionally more.

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