What is Compound Interest?

Example

If you invest $10,000 in XEQT.TO with an average return of 8% per year:

• After 10 years: ~$21,600 (gain of $11,600)
• After 20 years: ~$46,600 (gain of $36,600)
• After 30 years: ~$100,600 (gain of $90,600)

Notice that the gain in the last 10 years ($54,000) is almost 5 times the gain in the first 10 years ($11,600). That is the magic of compound interest: the effect accelerates over time.

In a TFSA, these gains are 100% tax-free, which further amplifies the compounding effect.

Why It Matters

Compound interest is the most powerful force in investing. The earlier you start, the more dramatic the effect. An investor who starts at 25 with $500/month will end up with far more than one who starts at 35 with $1,000/month, despite similar total contributions.