The Magic of Compound Interest (and Why You Shouldn’t Interrupt It)
Albert Einstein allegedly called compound interest the "eighth wonder of the world," and whether or not he said it, the concept truly is one of the most powerful forces in investing. Compound interest isn’t just a math formula—it’s a mindset that rewards consistency, patience, and time. In fact, as Charlie Munger, Warren Buffett’s long-time partner, once said:
“The first rule of compounding: Never interrupt it unnecessarily.”
Let’s explore what that means—and why it's such a critical principle for building long-term wealth.
What Is Compound Interest?
Compound interest is when the interest you earn on an investment is added to your principal, and then you begin earning interest on both the original amount and the accumulated interest. Over time, this creates an exponential growth curve that can turn steady investments into substantial wealth.
Here’s a simple example using a $100,000 investment:
- At an average annual return of 7%, after 10 years, that $100,000 grows to about $196,700.
- Leave it alone for another 10 years, and it becomes $386,970.
- By year 30, without adding another dollar, it grows to more than $761,225.
That’s over 7x growth—just by staying invested and letting time do the heavy lifting.
Time Is Your Greatest Asset
The key to harnessing compound interest is time. The earlier you start, and the longer you stay invested, the more powerful compounding becomes. It’s not about timing the market, but rather time in the market.
Every time you pull money out early, pause contributions, or try to “wait for a better time,” you’re interrupting the compounding process—and potentially forfeiting future growth. This is exactly what Charlie Munger warned against. When he says, “Never interrupt it unnecessarily,” he’s reminding investors to stay focused on the long game.
Real-World Compounding
Compounding works across a wide range of investments—your 401(k), IRAs, brokerage accounts, and dividend reinvestment plans. It rewards consistency and discipline. Importantly, compounding isn't about luck or finding the perfect stock — it's about sticking with a long-term plan, even during short-term volatility.
And while compound interest is a financial concept, the same idea applies to other parts of life: learning, habits, career growth. Small efforts, repeated over time, often lead to big results.
Let It Grow
Are you giving compound interest the time it needs to work? Whether you’re just starting out or fine-tuning a mature portfolio, it's worth asking if your strategy supports uninterrupted growth.
Let your money do the work for you—and don’t interrupt it.
