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Compound interest: how does it work?
In short: Compound interest is when your gains earn gains in turn: 7% of $100 the first year, then 7% of $107 the next, and so on. Over time, growth accelerates.
An example
$1,000 at 7% a year becomes about $1,970 after 10 years, $3,870 after 20 and $7,600 after 30. The second decade earns more than the first, the third even more.
Markets are not a steady 7%
There are years at +25% and others at -30%. The long-term average looks like compound growth, but the path is bumpy.
What stops it
High fees, frequent withdrawals and big losses. Losing 50% then requires +100% just to get back to where you started.