Compound interest
What it means
Interest (or investment growth) that earns interest on itself over time, not just on your original amount — so returns accelerate the longer money stays invested.
Why it matters
It's why starting small and early tends to beat starting large and late — time in the market does a meaningful share of the work.
A worked example
Put 10,000 in at an average 8% a year and leave it alone. After 10 years it is about 21,600. After 20, about 46,600. After 30, about 100,600.
Look at where the growth lands. The first decade adds roughly 11,600; the third decade adds about 54,000. Nothing changed except elapsed time — the same rate applied to a much larger balance. This is why the most valuable input in compounding is not the rate but the number of years, and why starting earlier with a small amount often beats starting later with a large one.
What people get wrong
Compounding examples always assume a steady rate, and no real investment delivers one. Markets produce a sequence — up 20%, down 15%, up 6% — and the order matters, particularly if you are withdrawing money. A large fall early in a withdrawal period does far more damage than the same fall later, because it shrinks the balance that everything afterwards compounds on.
The second thing the tidy curve hides is that it runs in reverse on debt. Credit-card interest compounds against you at rates that usually exceed anything you can reliably earn investing, which is why paying it down generally beats investing alongside it.
How this works in Latin America
In higher-inflation economies the headline rate and the rate that matters are different numbers. If an instrument pays 10% and inflation is 6%, your purchasing power grew by roughly 3.8%, not 10% — the real return is closer to the ratio of the two than to their difference, though subtracting is a decent approximation at modest levels.
This is the single most important adjustment for anyone compounding in pesos, reais or Argentine pesos. A nominal return that looks impressive next to a US savings rate can be flat or negative once local inflation is taken out, and every long-run projection should be run in real terms to be meaningful.