Published: January 30, 2026

Compound Interest Explained: The Math That Builds Wealth

Why Now

On r/investingforbeginners, the most common question is “how do I start?” The answer involves compound interest, but most new investors don’t understand how powerful it actually is.

TL;DR

• Compound interest means earning returns on your returns
• Time Acceleration — after ~15 years, your returns exceed your contributions
• Starting early matters more than starting large

The Time Acceleration Effect

Compound interest has a hidden pattern. For the first several years, your contributions dwarf your returns. Then something shifts.

The Time Acceleration is when your investment returns exceed your annual contributions. At that point, your money genuinely starts working for you.

What Investors Often Get Wrong

• Underestimating the timeline. The first 5-10 years feel slow. The last 10 years feel magical.
• Focusing on the amount. Starting with $500 at 25 beats $5,000 at 35 for most people.
• Forgetting consistency. Regular contributions matter more than timing contributions perfectly.

Historical Anchor: 2000-2025 Market

The S&P 500 from 2000-2025 included two major crashes (2000, 2008) and multiple corrections. Yet an investor who started in 2000 and held through all volatility still achieved positive returns. Time in the market absorbed all the noise.

The Numbers

$500/month at 8% average return:

• 10 years: ~$92,000 (~$52,000 contributions)
• 20 years: ~$275,000 (~$120,000 contributions)
• 30 years: ~$745,000 (~$180,000 contributions)

Bottom Line

Compound interest requires patience and consistency. The Time Acceleration effect means early investors eventually reach a point where their returns exceed their contributions.

The rule to remember:

“The first decade is about contribution. The second decade is about acceleration. The third decade is about freedom.”