Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

  • About Us
    • Contributors
    • Archives
    • Dick Young’s Safe America
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Dynamic Maximizers®
  • Retirement Compounders®
  • Free Email Signup

The Most Powerful Force in Investing

May 2, 2016 By Jeremy Jones, CFA

The most powerful force in investing is compound interest. As Charlie Munger, Warren Buffett’s long-time partner once said “Understanding the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things.” The examples of compound interest that we see presented most often are those that show its power over long periods of time.

Here we illustrate the power of compounding in another way. The chart below shows the gain on a $10,000 investment over a 20-year period using different rates of return. The rates of return are on the horizontal axis with each corresponding dollar gain on the vertical axis. Note that starting at 1%, each successive return is double the prior return.

Here’s where compound interest shows its power. As each rate of return doubles, your profit more than doubles. When you compound at 2% for twenty years, your profit is 2.2X your profit when compounding at 1%. And when you compound at 8% for twenty years, you have more than 3X the profit that you do when you compound at 4%. Double your return again, which is admittedly unrealistic over a 20-year period, and your profit is 5X your profit when compounding for 20 years at 8%.

You can read more about the awesome power of compounding in a neat little story Dick Young tells readers here.

compounding chart ii

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • The Fed Unleashed a Force it Can’t Control
  • Miss This Investing Concept to Your Everlasting Sorrow
  • The Most Important Thing in Investing
  • Author
  • Recent Posts
Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #5 in CNBC's 2021 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
Latest posts by Jeremy Jones, CFA (see all)
  • Despite Inflation, Best Year Ever for Vacation Demand - July 1, 2022
  • Purchases of Gaming Chips for Crypto Mining Tailing Off - June 30, 2022
  • Are Google, Amazon, and Microsoft About to Crash This Specialized Real Estate Market? - June 29, 2022

Search Young Research

Most Popular

  • Here’s Why You Need a 15-Year Retirement Investment Plan
  • Why Work When Taxes Take It All?
  • Are Google, Amazon, and Microsoft About to Crash This Specialized Real Estate Market?
  • What Happens to Your Passwords When You Die?
  • Regulators' Bungled Attempts to Cut Emissions Drove Oil Prices Higher
  • Is the Great Job Boom Over?
  • RURAL RENAISSANCE: America Finds the Country Again
  • The Power of a Compound Interest Table
  • Your Survival Guy: Clearing the Decks, Buying a Boat, Seeing the World and More
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Could this Be the Vanguard GNMA Winning Edge?

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

RSS The Latest at Richardcyoung.com

  • Happy Independence Day
  • For Investors Who Want to Stop Worrying About a Market Crash
  • Breaking News: House Election Update
  • WATCH: New York Governor Melts Down When Asked for Facts
  • Florida Is a Refresher Course in American Greatness
  • Should You Believe Ms. Hutchinson?
  • Biden’s Economy Even Weaker than Thought
  • A Cashless Society Is A Debacle for Americans
  • Time to Save, Troubles Dining Out, and Intelligence on Yellowstone
  • Democrats Running AWAY from Biden on the Campaign Trail

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2022 | Terms & Conditions

 

Loading Comments...
 

    loading Cancel
    Post was not sent - check your email addresses!
    Email check failed, please try again
    Sorry, your blog cannot share posts by email.