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The Power of Compounded Returns Thumbnail

The Power of Compounded Returns

Compounding is a powerful force. When returns are reinvested, the investment’s value can grow exponentially over time. 

  • Consider a hypothetical $10,000 investment earning 10% a year—the S&P 500 Index’s approximate annualized return since 1926. Over a 45-year working lifetime (age 20 to 65), $10,000 would have grown to $728,905.
  • At a 10% annual return, an investment doubles in value about every seven years. So, the earlier you start investing, the larger the potential compounding effect.
  • For example, investing $10,000 at age 20 would result in a much higher end value at age 65 than investing the same amount at age 30 or 40.

     

Compounding can help turn a small investment into substantial wealth. But to harness that power, the sooner you start, the better.



David Rappaport, CFP®
David is the Co-Founder and Chief Investment Officer of Rappaport Reiches Capital Management. He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances. Please connect with David below. He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.


Past performance is no guarantee of future results. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. 
In USD. For illustrative purposes only. S&P 500 Index annualized return January 1926–December 2025 is 10.42%. S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. 
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. 
Investment products: • Not FDIC Insured • Not Bank Guaranteed • May Lose Value  
Dimensional Fund Advisors does not have any bank affiliates.
The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only. Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.