# ♨ Compound Interest

By [Let Them Eat Cake](https://paragraph.com/@ltecake) · 2022-06-21

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**TL,DR: Like baking soda, compound interest can cause exponential growth**

**Compound Interest / Baking Soda**

The basic principle of compound interest involves reinvesting interest payments over time. Let’s say your initial investment amount is $100 and yields 5% interest per year. After 1 year you now have $105. Rather than investing $100 again the following year, you can invest $105, and end up with $112.50. Per the Law of 72, continuing this process will double your money in just about 14 years.

**Rule of 72**

To calculate exponential growth on the fly and understand the time it will take to double your money, simply divide 72 by the annual interest rate on your investment. Since inception almost 100 years ago the S&P has returned roughly 10% annually, meaning investments in the market typically double in just 7.2 years.

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*Originally published on [Let Them Eat Cake](https://paragraph.com/@ltecake/compound-interest)*