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Fundamentals

Compound Interest: The Eighth Wonder

Compound interest is the process where interest earned is reinvested to earn further interest — creating exponential growth over time. Einstein famously called it "the eighth wonder of the world."

How Compound Growth Works

The formula is simple: FV = PV × (1 + r)ⁿ where FV is future value, PV is present value, r is annual return, and n is years. The magic is in the exponent — time has a far bigger impact than the initial amount or even the return rate.

🧮 Compound Growth Calculator
Initial investment£10,000
Annual return12%
Years20

The Net-Net Connection

Graham net-net portfolios have historically returned around 31% annually on the LSE. Plug that into the calculator above and see how dramatically it changes outcomes versus a 7% index return.

This is why time in the market matters: a 10-year head start, even with a smaller initial investment, typically outperforms starting later with more capital.

📌 Key insight: Doubling your annual return is far more powerful than doubling your initial investment. The calculator above demonstrates this vividly — compare £10k at 12% vs £20k at 12% vs £10k at 24%.
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