💰 Compound Interest

The Magic of Compound Interest

Albert Einstein reportedly called compound interest "the eighth wonder of the world."Whereas simple interest only earns returns on the original principal, compound interest earns returns on both the principal and the accumulated interest. Over time, the gap grows exponentially — creating a powerful snowball effect.

📐 Formula: A = P × (1 + r/n)^nt
P = Principal, r = Annual rate, n = Compoundings per year, t = Years invested

Simple vs. Compound: How Different After 30 Years?

Suppose you invest ₩10M at an 8% annual return for 30 years:

• Simple interest after 30 years: ₩10M + (₩10M × 8% × 30) = ₩34M
• Compound interest after 30 years: ₩10M × (1.08)³⁰ ≈ ₩100.6M

Same principal, same rate — yet compound interest delivers roughly 3× more wealth than simple interest.

The Rule of 72 — How Long to Double Your Money

The Rule of 72 is a quick mental shortcut to estimate how many years it takes for an investment to double at a given annual return.

⚡ Years to double ≈ 72 ÷ Annual Return (%)
At 8%: 72 ÷ 8 = 9 years to double
At 6%: 72 ÷ 6 = 12 years
At 12%: 72 ÷ 12 = 6 years

Why Time Beats Rate

The single most powerful variable in compound interest is time, not rate. Someone who starts investing ₩1M per month at age 25 will often end up with more wealth than someone who invests ₩2M per month starting at age 35 — even though the late starter contributes more dollars per month overall.

• Start now, even with a small amount. The earlier you start, the longer your money has to compound.
• Reinvest all returns. Don't withdraw interest or dividends — let them compound to maximize the effect.
• Minimize fees. A 1% difference in annual fees can compound into tens of millions of won over 30 years.