Compound interest, explained with your first job's paycheck
Compounding is the only real advantage teenagers have over adult investors, and it is entirely made of time. Here is the version that actually lands.
The idea in one sentence
Your money earns a return, and next year that return earns a return too. Nothing grows in a straight line — it curves upwards, slowly at first and then absurdly.
We use 7% a year in every calculator on the site. That is a long-run nominal assumption for a broad stock market, not a promise, and real years look nothing like it: some are +20%, some are -18%.
$50 a month from 16
Put aside $50 a month from your first job at 16 and stop completely at 25 — nine years, $5,400 of your own money. Leave it alone until 60 and, at 7% a year, it lands somewhere around $70,000.
Start the same $50 a month at 30 instead and keep going for thirty years — $18,000 of your own money — and you end up in a similar place. The 16-year-old paid a third as much for the same result. That gap is time, not skill.
Where compounding quietly breaks
Fees compound too, in the wrong direction. A 2% annual fee on a portfolio can eat roughly a third of your final amount over forty years compared with a 0.2% fund.
So does interrupting it. Selling everything after a scary month and returning two years later removes exactly the years the curve needed.
Check the annual fee of anything before you own it.
Automatic and boring beats clever and occasional.
The takeaway
Small amounts started early beat large amounts started later, as long as you leave them alone and keep fees low.