Investing a fixed amount on a schedule

Compounding: growth on growth

The lesson in full

Money can grow while you sleep. Compounding means your returns start earning returns of their own: growth on growth.
Put US$1,000 somewhere that grows 10% a year. Year 1: US$1,100. Year 2: US$1,210, because the 10% now applies to the gain too. After 10 years: about US$2,594.
After 20 years: about US$6,727 with compounding, but only US$3,000 if you spend the US$100 of gains each year instead of reinvesting them.
The Rule of 72: divide 72 by the yearly return to estimate how many years your money takes to double. At 10%, about 7 years. At 6%, about 12.
Investing a fixed amount on a schedule, say US$50 every month, is called dollar-cost averaging (DCA). It builds the habit and gives compounding more time.
Common mistake
Myth: a big loss is easy to win back. Reality: losses compound too. Lose 50% and you need a 100% gain just to get back to where you started. Protect your capital first.
Key takeaway
Start early and stay patient: with compounding, time does most of the work. Big losses work in reverse.

Compounding means... Returns earning more returnsGains are added to your money, so next year's growth is worked out on a bigger amount.
US$1,000 at 10% a year for 20 years becomes about... US$6,7001,000 × 1.1 twenty times is about US$6,727. US$3,000 is what you'd get without compounding.
DCA means... Investing a fixed amount on a scheduleDollar-cost averaging spreads your buying over time, so you don't need to guess the best day.
By the Rule of 72, money growing 8% a year doubles in about... 9 years72 ÷ 8 = 9, so at 8% a year your money roughly doubles in 9 years.