Basically, **Compound Interest** tells us that the longer the period you have placed an investment for, and/or the higher the rate of return or interest on that investment, the **more it will amount to if you keep reinvesting the interest**. And it will grow faster and faster over time (referred to as **exponential growth**) not just in a straight line.

However, **you must keep reinvesting the annual interest** you receive or this effect will not happen.

If you invest $100 at 10% for 10 years, you will have $259 at the end of 10 years. If you made the same investment for double the time (20 years) you would actually have more than double the outcome; $673 to be exact.

Alternatively, if you invest $100 at 20% for ten years you will have $619 compared to the $259 at 10% return.

So, either a longer term or a higher rate or both pays off for compound interest.

The lessons we can learn from this relentless growth include:

- You should focus on getting the
**best interest or return on investment**you can within what you consider to be acceptable risk. Each 1% increase in interest/return has a greater than 1% increase in your wealth. - You will make a lot more from an investment if you can hold it for a longer time. Expressed differently,
**the sooner you can get a profitable business running and the longer you can run it, the better off you will be – by an exponential factor.**

As a sidebar, if you want to impress friends and relations with your ability to calculate compound interest in your head, you should know the “**Rule of 72**”.

Simply put, your money will **double** in (**72/interest rate**) years.

For example, if you invest $100 with compound interest at 9% per annum, the **rule of 72 gives 72/9 = roughly 8 years** required for the investment to be worth $200.

This can be a handy, quick, calculator when estimating the respective merits of two plans. One that pays **9% per annum doubles in 8 years** whereas one **paying 6%** (which doesn’t seem all that different as a number) **takes 12 years to double** – 1 and a half times as long.