Key point
Charlie Munger put it simply: 'The first rule of compounding is never interrupt it unnecessarily.' Every time you pull money out of an investment — for an impulse purchase, a lifestyle upgrade, a 'temporary' need — you are not just losing the principal. You are destroying all the future growth that principal would have generated. The interruption cost is invisible but enormous. Source: Munger, C., 2000 Wesco Financial Annual Meeting remarks; widely attributed in multiple shareholder meeting transcripts.
Compare
| Years | Total Contributed | Final Value at 8% | Interest Earned |
|---|---|---|---|
| 10 years | $12,000 | $18,294 | $6,294 |
| 20 years | $24,000 | $58,902 | $34,902 |
| 30 years | $36,000 | $149,035 | $113,035 |
| 40 years | $48,000 | $349,100 | $301,100 |
Formula
Future Value = P × [(1+r)ⁿ − 1] ÷ r (for monthly contributions)
Compare
| Investor | Starts | Monthly | Stops | Total Contributed | At Age 65 (8%) |
|---|---|---|---|---|---|
| Early starter | Age 20 | $300 | Age 65 | $162,000 | ~$1,580,000 |
| Late starter | Age 30 | $300 | Age 65 | $126,000 | ~$690,000 |
| Early + stops | Age 20 | $300 | Age 30 only | $36,000 | ~$890,000 |
| To match early at 30 | Age 30 | $690 | Age 65 | $290,000 | ~$1,580,000 |
Key point
Rule of 72: Divide 72 by your annual return percentage to get the approximate number of years for money to double. At 8%, money doubles every 9 years. Starting at 20, you get roughly 5 doublings before 65. Starting at 30, you get 3.9 doublings. Each missing doubling cuts your wealth roughly in half.
Formula
Years to Double ≈ 72 ÷ Annual Return %
Try it
Check-in
Note
Three gaps in flat-return compounding models. (1) Real vs. nominal: 8% is nominal. After ~2–3% inflation, real equity returns run about 6% (Ibbotson SBBI, 1926–2023). At 6% real, Maya's ~$890K nominal is roughly $400K in today's purchasing power (recompute the whole path at 6%). (2) Volatility — feel the band: S&P 500 annual standard deviation is ~16%; one year in six delivers a loss. The smooth compounding line is the median, not a guarantee. (3) Sequence-of-returns risk: a large drop near retirement erases far more wealth than the same drop early in the accumulation period. Monte Carlo simulations show the 10th-percentile 40-year outcome is roughly 50% below the median. Know the spread, not just the center.
Check-in
Sit with the ideas.
Maya starts investing $300/month at age 20 and stops completely at age 30 — contributing for only 10 years. Carlos starts at age 30 and invests $300/month continuously until age 65 — 35 years of contributions. Both earn 8% annually. At age 65, who has more money?