How Compounding Works
Compound interest is earning interest on interest. When you invest $10,000 at a 7% annual return, you earn $700 in year one. In year two, you earn 7% on $10,700 ($749), accelerating your wealth accumulation exponentially.
The Rule of 72
To quickly estimate how many years it takes to double your money, divide 72 by your expected rate of return:
- 7% Return Rate: 72 / 7 = ~10.2 years to double portfolio value.
- 10% Return Rate: 72 / 10 = ~7.2 years to double portfolio value.
The 4% Safe Withdrawal Rule
In retirement planning, the 4% Rule suggests withdrawing 4% of your total retirement nest egg in your first year of retirement (adjusting annually for inflation). Historically, a 4% withdrawal rate maintains your portfolio for 30+ years without depleting capital.
Calculate Compound Growth
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