Albert Einstein allegedly called compound interest the “eighth wonder of the world” – “He who understands it earns it; he who doesn’t pays it.” Well, I don’t know if we can’t verify he actually said that, but the quote really resonates because it highlights how powerful compounding can be over time. Because here’s the thing: the secret to building wealth isn’t some magic trick, being some genius inventor or entrepreneur, no, it’s much simpler, all it takes is compound growth (and discipline and time–more on that later!).
Now, what exactly is compound growth when we talk about investing? In plain English, it means you earn returns on your returns. Imagine tossing a few dollars into the market and then watching them slowly and steadily grow as they keep earning more money over time. The earlier you get started, the more time your money has to do its thing. And hey, the stock market’s been on a pretty impressive ride over the last hundred years—no guarantees, of course, but that’s why we try our best to keep the ball rolling.
Grace Groner – From $180 to $7 Million
One of the most famous examples of starting early and letting compound growth work its magic is the story of Grace Groner. Grace was not a Wall Street tycoon or tech CEO; she was a secretary in Illinois with a modest income. In 1935, at the age of 26, Grace invested about $180 to buy three shares of her employer’s stock (Abbott Laboratories). Instead of cashing out at the first sign of profit, she held onto these shares for 75 years, diligently reinvesting all the dividends (i.e., using the payouts to buy more shares).
Over the decades, those three shares grew into a much larger number of shares due to stock splits and dividend reinvestments. Grace lived simply and never needed to sell her investment. By the time of her passing in 2010 (at 100 years old), the value of her Abbott stock had grown to over $7 million!¹
Her initial few hundred dollars multiplied thousands of times over. This wasn’t due to lottery-like luck or receiving huge salaries – it was the result of long-term compound growth on a small early investment.
How did she do it? Grace’s investment strategy was extremely simple: buy, hold, and reinvest. She believed in the company she invested in and let time and compound interest do the heavy lifting. Every time Abbott Laboratories paid her a dividend, she used it to purchase more shares. Those new shares then earned dividends of their own in subsequent years, creating a snowball effect. In essence, she earned “interest on interest,” and the longer she stayed invested, the more powerful that snowball became.
Disclaimer: Grace Groner’s outcome, while inspiring, is an extreme case and not typical. She benefited from exceptional company growth over a very long time. Not every investment will grow like Abbott did, and very few people hold a single investment for 75 years. The lesson to take away is the principle that time in the market can significantly amplify growth. All investing involves risk, and there’s always the possibility of losing money. No success story – even one like Grace’s – is a guarantee of future results for any investor.
The Power of Compound Growth (Why Starting Early Matters)
Why was starting early so critical in Grace’s success (and in so many other cases)? It comes down to the mathematics of compound growth. When your investments earn returns, and you reinvest those returns, your money begins to grow exponentially. The longer this process has to repeat, the larger the growth can become. In the beginning, the gains might seem small, but given enough years, the numbers can become astonishing.
Let’s break down what this means for an investor:
Your money earns money: Suppose you invest $100 and it earns a 5% return in a year – you’d gain $5. If you leave the total $105 invested, next year a 5% return would apply to the whole $105, earning you about $5.25. That extra $0.25 is interest on your interest (or returns on your returns). It may not sound like much, but each year the amount your money earns can grow if you continually reinvest. Over many years, this adds up significantly.
Time multiplies growth: The more years you give this process, the more dramatic the effect. To illustrate, the U.S. Securities and Exchange Commission gives a simple example: if a teenager or young adult starts saving $5 a week at age 18 (earning an 8% average annual return), by age 65 they could have about $134,000 saved. But if someone waits until age 40 to start investing, they’d have to save $32 a week (over six times as much!) to reach roughly the same $134,000 by age 65.
In fact, waiting just one year – starting at 19 instead of 18 – would end up costing over $10,000 in lost potential growth by age 65.²
The message is clear: starting earlier lets you contribute less, but still potentially end up with more because your money gets that extra time to compound.
Early starts beat larger yet later starts: Consider two fictional investors: Alice and Bob. Alice began investing at age 25, setting aside $50 every two weeks until she turned 65. Bob, on the other hand, waited until age 40 to start and contributed $100 every two weeks until 65. Although Bob ended up putting in more money overall (roughly $65,000 compared to Alice’s $52,000), by age 65, Alice’s portfolio had grown to approximately $207,000, while Bob’s reached only about $147,000.
Despite investing less money, Alice’s early start gave her investments extra cycles to earn interest on interest—this is the magic of compound growth. Those additional 15 years made all the difference, demonstrating that when it comes to building wealth, time truly matters.
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Most of the growth comes late: Compound growth is slow at first and accelerates later. In Alice’s case above, her balance in the early years grew slowly, but by the end the curve steepened. This is why someone like Grace Groner saw such a windfall after several decades – the real acceleration happened in the later years of her investing journey. It’s also evident in the case of Warren Buffett, one of the world’s most successful investors. Buffett started investing as a child (he famously bought his first stock at age 11) and kept at it throughout his life. His talent in picking investments is one reason for his great wealth, but just as important is the amount of time his money had to grow. Buffett is 93 years old now and worth over $100 billion.
Financial writer Morgan Housel points out that if Buffett had started investing in his 30s and stopped in his 60s like a normal retirement, we likely “would have never heard of him.” In a thought experiment, Housel found that if Buffett had only invested from age 30 to 60 (achieving his same high annual returns), his net worth would be around $11.9 million – an impressive sum but 99.9% less than his actual fortune.³ The fact that Buffett actually began at age 10 and kept investing into his 90s is the real secret of why his wealth snowballed so massively. In other words, time in the market was a huge factor in his success, demonstrating that compound growth rewards the patient and the persistent.
Important: All these examples assume a steady rate of return (like 4% or 8% annually) for illustration. Reality is different. In real investing, returns fluctuate year to year – some years will be higher, some lower, and some negative. For instance, the U.S. stock market has historically returned about 10% per year on average over the last century, but that includes great booms and painful crashes; the average rarely happens in any given year.⁴ You should never assume you’ll get a guaranteed percentage every year. Past performance is not a promise of future results. The reason we still use these examples is to illustrate the potential impact of starting early. The core idea holds true: giving your money more time to grow tilts the odds in your favor.
Even if future returns are lower than in the past, starting sooner will still leave you better off than starting later, all else being equal. Just remember that investing involves risk, markets can be volatile in the short term, and you should be prepared for ups and downs. The goal is to stay invested for the long haul to let compounding do its work while making adjustments according to your financial goals and risk tolerance.
Final Thoughts
Starting your investment journey early is one of the greatest financial gifts you can give yourself. As we saw with the story of Grace Groner (and in the trajectory of Warren Buffett’s wealth), patience and time can turn ordinary investments into something extraordinary. The mathematical reality of compound growth means that even small contributions, if given enough years, can potentially grow into large sums.
However, always keep in mind that investing is not a risk-free endeavor. There will be bumps along the way. Markets can rise and fall, sometimes sharply. You may see your account balance drop during a bad year – this is normal. The success stories of compounding all require staying the course despite the downturns. A long-term investor needs the discipline to not panic when investments are down, and the wisdom to avoid pulling money out for short-term whims. That said, it’s equally important to periodically re-evaluate your strategy as your life situation changes (for example, as you approach retirement, you’d typically dial down risk).
Remember the old proverb: “The best time to plant a tree was 20 years ago. The second-best time is now.” The same goes for investing – start as soon as possible and let your money grow. Now, if you’re in your 40s and just now getting into investing, that’s cool – better late than never, right? But if you’re 60 and you haven’t started investing yet, well, maybe it’s time to have a real conversation about what you can do at this point and really focus on optimizing your Social Security and Medicare situation.
In any case, you can use this information to inspire the younger folks in your life and maybe even open up an investment account for them and give them a head start. If you have any questions about your own situation or would like a review of your investment strategy and financial plan, don’t hesitate to click the button below to set up a meeting.
Disclaimer: The information above is for educational purposes. Actual investment results will vary and are never guaranteed. Past performance is not indicative of future results. All investments carry risk, including the potential loss of principal. Consider your own financial goals and perhaps consult a financial advisor to develop a plan that’s right for you. The examples and figures discussed (rates of return, account balances, etc.) are hypothetical or historical and used to illustrate concepts; they do not predict or promise any future outcome. Always do your due diligence before investing, and invest within your means and risk tolerance. With that in mind, happy investing – and here’s to the growth of your money!
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