The Power of Compound Interest: How to Supercharge Your Retirement with Rule #1 Investing

Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” He also said that the math behind it is difficult and not very intuitive.

It’s understandable that many people don’t quite understand the concept of compound interest fully. More importantly, do you understand how compound interest can benefit you and help you retire comfortably?

Here’s an example. At a 6% interest rate your money is doubling once about every 12 years. Let's say that you're investing for the next 30 years. In that period of time you would double your money once in the first 12 years, then again in the second 12 years, and then half of a double for 6 years.

If you start with $10,000 at 6%, in 30 years you would have the $10,000 turn into $20,000 after 12 years. After 24 years $20,000 would turn into $40,000, and then you get half of that again, another $20,000 after the last 6 years. Over a 30-year period of time at 6% return, you end up with about $60,000. Which is pretty good over 30 years when you think about it.

But, what if you got a 15% return? How much more money will you make? What if you’re paying for this interest with credit cards? Learn all about what compound interest means for you in the video below.

The Rule #1 Take on Compound Interest: Why 15% Beats 6% by a Mile

Now let’s look at what happens when you follow the Rule #1 strategy — targeting a 15% annual return by investing in wonderful businesses at attractive prices.

Instead of settling for a 6% return, imagine compounding $10,000 at 15% over the same 30-year period. Here’s how the math plays out:

• After 10 years: $10,000 becomes approximately $40,455

• After 20 years: That becomes $163,665

• After 30 years: You’re looking at a staggering $662,117

That’s over 11x more than the $60,000 you’d have with a 6% return.

This is the power of Rule #1 investing — using patience, discipline, and the right approach to generate real wealth without taking reckless risks. It’s not magic. It’s math — and it’s achievable if you’re investing in businesses you understand, that have durable competitive advantages, and are run by trustworthy people.

Compound Interest Works Both Ways — And Credit Cards Are the Enemy

Just as compound interest can grow your wealth, it can also compound your debt. Many credit cards have interest rates over 20%, meaning your balance can double in less than 4 years if unpaid.

That’s why Rule #1 isn’t just about making great investments — it’s about avoiding financial traps that work against your future freedom.

Before investing, it’s essential to pay off high-interest debt. Why? Because eliminating a 20% debt is like earning a guaranteed 20% return. That’s hard to beat in any market.

Start Early, or Catch Up Fast — Here’s How

The earlier you start, the more time compound interest has to work for you. But even if you feel late to the game, don’t panic — Rule #1 investing gives you a way to catch up faster than conventional strategies.

• Someone starting at 25 investing $200/month at 15% ends up with about $1.36 million by age 55.

• Someone starting at 40 investing $500/month at 15% could still hit over $750,000 in 20 years.

The key isn’t just how much you invest — it’s the rate of return and the consistency of your strategy.

How Rule #1 Investors Use Moats and Margin of Safety to Maximize Compounding

To get those higher returns, Rule #1 investors follow four key principles:

1. Understand the Business – Only invest in companies you can clearly explain in one sentence.

2. Identify a Moat – Look for businesses with durable competitive advantages, like strong brand loyalty (Apple), cost advantages (Costco), or network effects (Visa).

3. Evaluate Management – The people running the company should have integrity and skill.

4. Buy with a Margin of Safety – Only buy when the stock is on sale compared to its true value.

These principles help you avoid big losses, which is crucial to compounding. As Warren Buffett says: “Rule #1: Don’t lose money. Rule #2: Don’t forget Rule #1.

Having a good understanding of compound interest and how to make it work for us, rather than against us, is the key to a great retirement. To see an example of how interest rates compounding over time will affect you, download my free retirement calculator. It's awesome and you can crank it out and see what it'll do. This is especially useful if you are planning to retire early.  Just click the button below to get it.