Compound Interest

What is Compound Interest? — Definition

Compound interest is often called the 'eighth wonder of the world' (a phrase frequently attributed to Einstein, though disputed). The core idea is simple: your returns generate their own returns. A $10,000 investment at 10% annual return becomes $11,000 after year one. In year two, you earn 10% on $11,000, not $10,000 — so you gain $1,100 instead of $1,000. Over decades, this snowball effect becomes staggering.

The Rule of 72 is a quick mental math trick: divide 72 by your annual return rate to estimate how many years it takes to double your money. At 10%, money doubles every ~7.2 years. At 6%, every 12 years. At 3%, every 24 years.

Example

$10,000 invested at 10% annual return grows to $25,937 after 10 years, $67,275 after 20 years, and $174,494 after 30 years — with zero additional contributions. The last 10 years added more value ($107,219) than the first 20 years combined.

Dividend reinvestment via the Dividend Calendar on BMInsider is one of the most practical ways to harness compounding — every dividend payment buys more shares that then generate more dividends.