When it comes to building long-term wealth, one concept stands above the rest: compound interest. It’s often referred to as the eighth wonder of the world for good reason. It rewards consistency, patience, and—most importantly—time. The earlier you start, the more powerful its effects.
What is Compound Interest?
Compound interest is the process by which your money earns interest—not just on the initial amount you invest, but also on the interest it accumulates over time. This means your wealth can grow at an accelerating rate, like a snowball gaining momentum as it rolls downhill. For example, if you invest $10,000 at a return of 7% per annum, in 10 years you’ll have just under $20,000. But leave that investment untouched for 30 years and it grows to over $76,000. The key difference? Time.
Why Starting Early is Essential
The magic of compound interest lies in its exponential growth. That’s why starting early—even with small amounts—can lead to significantly better outcomes than waiting until you have more to invest. Consider this:
- Investor A starts investing $200 a month at age 25 and stops at 35.
- Investor B starts investing $200 a month at age 35 and continues until 65.
Assuming a 7% annual return, Investor A, who invested for just 10 years, ends up with more than Investor B, who invested for 30 years. Why? Because A’s money had more time to grow and compound.
The Long-Term Impact
Compound interest doesn’t just benefit your superannuation or retirement savings—it’s a powerful force in any long-term investment strategy. Whether you’re building wealth for a home deposit, your children’s education, or financial independence, time is your greatest ally.
To make the most of compound growth, it’s important to consider investment solutions that are diversified, cost-effective, and aligned with your long-term goals. One such option includes managed accounts, which provide professional portfolio management with built-in diversification and ongoing oversight—ideal for investors looking to benefit from consistent, long-term compounding returns.
There’s no need to wait until you have a lump sum to start investing
Starting small, starting now, and staying consistent can have a bigger impact than you might think. Compound interest rewards time, not timing—and the earlier you begin, the more you’ll benefit. In the world of investing, time is not just money—it’s wealth.
