Fundamentals
Compound Interest
Interest calculated on both the initial principal and the accumulated interest from previous periods — growth on growth.
Example
$10,000 growing at 7% annually is worth about $19,672 after 10 years — not $17,000, because each year's gains earn their own return the following year.
Common Misconception
It's easy to underestimate how much of long-term growth comes from compounding rather than contributions — in a multi-decade retirement account, compounding often outweighs the money you put in yourself.
Why It Matters
Starting to invest even a few years earlier can meaningfully change a retirement balance, because that early money has more years to compound — timing matters as much as the amount.