Unit 1 · Level 1 · Why invest at all
The snowball
Compound interest is often called the eighth wonder of the world (a line frequently attributed to Einstein, though nobody can prove he said it). The idea is simple: your returns start earning returns of their own. Year one, €1,000 at 7% earns €70. Year two, the 7% applies to €1,070, and the snowball has started rolling downhill.
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What you get asked
What is the engine that makes compounding so powerful?
Growth on top of growth. Early on it looks boring. The fireworks come in the later decades, when the pile earning returns has become huge.
Put the compounding snowball in order
The magic ingredient is step 3: reinvesting. Spend the returns each year and the snowball never grows; it just stays a snowball.
You invest €200 every month for 30 years at roughly 7% a year. Your own deposits total €72,000, and compound growth adds roughly €170,000 on top. Roughly how big is the final pot?
Roughly €240,000, and over two-thirds of it is growth rather than your own deposits. Modest, boringly regular amounts plus decades is the whole recipe.
Ana starts investing at 25, Ben at 35, same monthly amount. Why does Ana usually end up far ahead at 65?
Compounding is back-loaded: the biggest gains come from the LAST doublings, when the pile is largest. Ten extra years early can matter more than doubling the deposits later.
Compounding means your returns themselves start earning ___.
Returns earning returns is the whole trick. Time is the fuel, so the best moment to start is early, and the second-best is now. 🐜
The rest of this unit
Inflation nibbles while compounding snowballs. The case for putting money to work.