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Compounding

Earning returns on past returns. At 7% a year, money roughly doubles every 10 years; time matters more than almost anything else.

When returns are reinvested, each year's growth applies to a larger base. $10,000 growing at 7% a year becomes about $19,700 after 10 years, $38,700 after 20 and $76,100 after 30.

The rule of 72 gives a rough doubling time: 72 divided by the annual return in per cent.

Why it matters

Compounding works on costs too: a 1% annual fee takes about a quarter of the final balance over 30 years. Small differences in returns, fees and inflation become large over long periods.

General information, not advice.