Compound interest
Earning returns on your past returns.
Compound interest is what happens when your gains start earning gains of their own. It is the reason small amounts invested early can grow into large ones.
How it works
In year one, you earn a return on the money you put in. In year two, you earn a return on that money plus the return from year one. Each year the base gets bigger, so the growth speeds up.
With stocks it is technically "compound growth" rather than interest, since returns come from rising prices and reinvested dividends, but the effect is the same.
Why time matters most
Compounding is slow at first and dramatic later. The last decade of a 30-year plan often adds more dollars than the first two decades combined. That is why starting early beats starting big.
Example$1,000 growing at 7% a year becomes about $1,967 after 10 years, $3,870 after 20 and $7,612 after 30. You never added another dollar.