If there’s one financial lesson I wish I had learned in high school, it’s the power of compound investing. Unfortunately, this crucial wealth-building principle is rarely taught in schools, leaving many young people unaware of how they can set themselves up for long-term financial success. The truth is, wealth isn’t built overnight—it’s grown over time. And the earlier you start, the more powerful compounding becomes.
For me, I was focussed on building companies which was compounding my effort/time into building the value of those companies. It wasn’t until around 2021 that I decided to deploy capital seriously across asset classes and harness the full power of compound investing.
Understanding Compound Investing
At its core, compound investing is the process of earning returns on both your initial investment and the returns it has already generated. Essentially, your money makes money, and then that money makes more money. This snowball effect accelerates over time, making it one of the most powerful financial tools available.
The famous quote attributed to Albert Einstein calls compound interest the “eighth wonder of the world.” While he may not have actually said it, the principle remains undeniably powerful. The longer you let your investments grow, the more exponential the results become. I’ve certainly taken notice of this over the last 6+ years and its now one of our core principles “Compound interest is the eighth wonder of the world.” Harnessing this principle allows time to turn small efforts into extraordinary results.
The Advantage of Starting Young
One of the biggest advantages young people have is time. The earlier you start investing, the more time your money has to grow. Let’s compare two hypothetical investors:
- Emma starts investing at 18: She invests $200 per month in a stock index fund that earns an average annual return of 8%. By the time she turns 60, she will have contributed $100,800—but thanks to compounding, her investment would grow to approximately $758,642.
- Jake starts investing at 30: He invests the same $200 per month with the same return. By age 60, he will have contributed $72,000, but his investment will only grow to about $298,072.
The difference? Starting 12 years earlier resulted in Emma having more than 2.5 times the wealth of Jake by retirement—despite investing only $28,800 more over time.
| Emma | Jake | ||||
| Year | Balance Start of Year | Contributions | Interest Added | Total Value End of Year | Jake’s Total Value End of Year |
| 1 | $0 | $2,400 | $90 | $2,490 | $0 |
| 2 | $2,490 | $2,400 | $297 | $5,187 | $0 |
| 3 | $5,187 | $2,400 | $520 | $8,107 | $0 |
| 4 | $8,107 | $2,400 | $763 | $11,270 | $0 |
| 5 | $11,270 | $2,400 | $1,025 | $14,695 | $0 |
| 6 | $14,695 | $2,400 | $1,310 | $18,405 | $0 |
| 7 | $18,405 | $2,400 | $1,618 | $22,423 | $0 |
| 8 | $22,423 | $2,400 | $1,951 | $26,774 | $0 |
| 9 | $26,774 | $2,400 | $2,312 | $31,486 | $0 |
| 10 | $31,486 | $2,400 | $2,703 | $36,589 | $0 |
| 11 | $36,589 | $2,400 | $3,127 | $42,116 | $0 |
| 12 | $42,116 | $2,400 | $3,586 | $48,102 | $0 |
| 13 | $48,102 | $2,400 | $4,082 | $54,584 | $2,490 |
| 14 | $54,584 | $2,400 | $4,620 | $61,605 | $5,187 |
| 15 | $61,605 | $2,400 | $5,203 | $69,208 | $8,107 |
| 16 | $69,208 | $2,400 | $5,834 | $77,442 | $11,270 |
| 17 | $77,442 | $2,400 | $6,518 | $86,359 | $14,695 |
| 18 | $86,359 | $2,400 | $7,258 | $96,017 | $18,405 |
| 19 | $96,017 | $2,400 | $8,059 | $106,477 | $22,423 |
| 20 | $106,477 | $2,400 | $8,927 | $117,804 | $26,774 |
| 21 | $117,804 | $2,400 | $9,868 | $130,072 | $31,486 |
| 22 | $130,072 | $2,400 | $10,886 | $143,358 | $36,589 |
| 23 | $143,358 | $2,400 | $11,989 | $157,746 | $42,116 |
| 24 | $157,746 | $2,400 | $13,183 | $173,329 | $48,102 |
| 25 | $173,329 | $2,400 | $14,476 | $190,205 | $54,584 |
| 26 | $190,205 | $2,400 | $15,877 | $208,482 | $61,605 |
| 27 | $208,482 | $2,400 | $17,394 | $228,276 | $69,208 |
| 28 | $228,276 | $2,400 | $19,037 | $249,713 | $77,442 |
| 29 | $249,713 | $2,400 | $20,816 | $272,929 | $86,359 |
| 30 | $272,929 | $2,400 | $22,743 | $298,072 | $96,017 |
| 31 | $298,072 | $2,400 | $24,830 | $325,302 | $106,477 |
| 32 | $325,302 | $2,400 | $27,090 | $354,792 | $117,804 |
| 33 | $354,792 | $2,400 | $29,538 | $386,729 | $130,072 |
| 34 | $386,729 | $2,400 | $32,188 | $421,317 | $143,358 |
| 35 | $421,317 | $2,400 | $35,059 | $458,776 | $157,746 |
| 36 | $458,776 | $2,400 | $38,168 | $499,345 | $173,329 |
| 37 | $499,345 | $2,400 | $41,535 | $543,280 | $190,205 |
| 38 | $543,280 | $2,400 | $45,182 | $590,862 | $208,482 |
| 39 | $590,862 | $2,400 | $49,131 | $642,393 | $228,276 |
| 40 | $642,393 | $2,400 | $53,408 | $698,202 | $249,713 |
| 41 | $698,202 | $2,400 | $58,040 | $758,642 | $272,929 |
| 42 | $758,642 | $2,400 | $63,057 | $824,099 | $298,072 |
This is why getting started early is critical. Even small amounts invested consistently can lead to life-changing results. Another principle we follow is “The easiest way to build wealth is slowly.” The key is to allow money to work for you through compounding rather than chasing quick gains.
The Warren Buffett Example: Compounding in Action
One of the greatest real-life examples of compound investing is Warren Buffett. Often regarded as one of the most successful investors of all time, Buffett built his fortune not through quick gains but by allowing compounding to work in his favor over decades.
Buffett started investing when he was just 11 years old, buying his first stock. By the time he was 30, he had accumulated a net worth of around $1 million (adjusted for inflation). However, the real magic of compounding happened in the later years of his life.
By age 50, his net worth had grown to $300 million. By 65, he was worth over $3 billion. But the most astonishing part? Over 99% of his wealth came after he turned 50. As of today, Buffett’s net worth exceeds $100 billion, and it’s largely due to the power of compounding over time. His strategy? Invest in great businesses, stay invested, and let time work its magic.
Buffett himself has said, “My wealth has come from a combination of living in America, some lucky genes, and compound interest.” His story is a testament to the fact that the longer you stay invested, the greater the rewards.
The Market and Long-Term Thinking
Another crucial principle for investors is to understand how markets behave. Short-term fluctuations can be misleading, but over time, true value becomes evident. As we subscribe to“The market is a voting machine in the short term and a weighing machine in the long run.”
This means that daily stock price movements are often driven by emotions and speculation. However, in the long run, companies with strong fundamentals will see their value recognised. The best investors stay patient, focusing on long-term trends rather than getting caught up in market noise and watch the investments compound annually over a long period of time.
How to Get Started with Compound Investing
If you’re a teenager or young adult, you don’t need a lot of money to start investing. Here are some simple steps to begin:
- Open a Brokerage Account: Many platforms allow young investors to start with as little as $10. Some brokers even offer custodial accounts for minors.
- Invest in Low-Cost Index Funds: Instead of picking individual stocks, consider investing in index funds like the S&P 500. These funds provide diversification and have historically delivered strong returns over time.
- Be Consistent: Set up an automatic monthly investment, even if it’s just $50 or $100. The key is to invest consistently and let time do the heavy lifting.
- Reinvest Your Dividends: Many investments pay dividends, which are small payments made to shareholders. Instead of spending them, reinvesting dividends allows you to buy more shares and accelerate your compounding.
- Avoid Panic Selling: Markets will go up and down, but long-term investing is about staying the course. The worst thing you can do is pull your money out during a downturn, missing the eventual recovery. Rather remember this principle “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” and see this as a buying opportunity.
For my children, I have set up brokerage accounts where they can contribute some of their birthday money and other financial gifts. I match their contributions 50:50 and use this as an opportunity to teach them about purchasing shares in companies. This has included investing in brands they recognise, such as Apple, Microsoft, Meta, and Roblox. I have also introduced them to the concept of ETFs and hedge funds, where they invest in a trend or asset manager rather than a single stock. Additionally, I have explained concepts like cryptocurrency and associated companies in that space. Every quarter, we review their portfolio together, discussing performance and considering any necessary rebalancing with the main goal being that with adequate annual returns over time their investments will increase significantly via the affects of compounding.
Final Thoughts
Growing wealthy isn’t about chasing quick gains or trying to time the market (yep I have the lashes on my back from attempting to do both on multiple occasions) —it’s about making smart decisions early and letting time work its magic. If you’re a teenager or young adult, the best gift you can give your future self is to start investing today.
While schools may not teach this essential lesson, you have the power to take control of your financial future. Start now, stay consistent, and let compound investing be the engine that drives you toward financial freedom.
Remember: Wealth isn’t built overnight—but with patience and persistence, it is built over time.
TheBucket 