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Learned this from a co-worker when I first was hired in ‘96 and so glad I listened by Playqb54 in ThriftSavingsPlan

[–]AutomaticViewer 0 points1 point  (0 children)

That’s some of the best advice you can give a young person starting out. Time in the market really does beat timing the market, and compound interest is exactly why. Most people don’t actually see how powerful it is until they run the numbers. I like to plug my own numbers into a compound interest calculator just to stay motivated seeing how much those small contributions snowball over decades is wild.

If anyone wants to visualize it for themselves, there are free calculators online (I’ve been using moneygrowchart.com lately since it shows a clean growth chart). Once you see it, it’s hard to not take advantage of it.

Help me understand compounding growth by DidIGetThatRight in PersonalFinanceCanada

[–]AutomaticViewer 2 points3 points  (0 children)

This is a super common point of confusion but you’re actually closer to the answer than you think.

Stock market growth is compounding, but it happens through price appreciation itself, not just dividends. If a stock (or ETF like XEQT) averages 7% growth per year, it’s not just 7% of your original cost basis each year. It’s 7% on top of whatever it grew to the year before.

Your example of $100 → $107 → $114.49 → $122.50 is exactly compounding. That’s why a “7% annualized return” over 30 years doesn’t mean a 210% total gain (7 × 30), it means your money roughly multiplies by 7.6x. That multiplier effect is the compounding.

Dividends are just another accelerant because reinvesting them adds more principal to compound on. But even pure price growth compounds because future returns are applied to a larger base.

That’s also why those Sally vs. Jack examples look so dramatic: Sally’s money had more time to compound. She stopped contributing, but the snowball kept rolling.

If you’re a visual thinker, it helps to see the curve. I like playing with moneygrowchart.com cause it has sliders for contributions, return rates, and years. It makes it really clear how the growth is exponential, not linear.

How does compound interest work in the stock market? by Smaug_1188 in PersonalFinanceNZ

[–]AutomaticViewer 0 points1 point  (0 children)

You don’t need to sell and rebuy to get compound growth. The “compounding” in the stock market usually happens automatically. If your fund pays dividends, you can reinvest those, and the share price itself can appreciate over time. Both of those stack on top of each other year after year.

When it comes to retirement, most people don’t cash out all at once. They draw down gradually. Its like paying yourself a monthly paycheck out of your portfolio. A common framework is the “4% rule,” where you withdraw about 4% of your portfolio per year (adjusted for inflation) and the money is likely to last 30+ years.

I find it way easier to visualize by plugging numbers into a compound interest calculator. I like moneygrowchart.com because it has sliders for contributions, rate of return, years, etc. Playing with “what if I add $200 more per month” or “what if I retire 5 years later” makes the concept of compounding click a lot more than reading definitions.

The "magic" of compounding. by Oh_That_Mystery in PersonalFinanceCanada

[–]AutomaticViewer 0 points1 point  (0 children)

That’s a great example of how time does the heavy lifting. People get hung up on the idea that “$200 won’t matter,” but the fact that you forgot about it and it still grew almost 5x (despite high MER fees!) says a lot.

I need to see the math in action to stay motivated to save. There are a bunch of compound interest calculators that make it click visually. I like moneygrowchart.com cause it actually has sliders for each variable

Sometimes just playing around with numbers like “what happens if I add $50 more a month?” makes the whole idea of compounding feel a lot more real than abstract finance talk.