Compound interest is earning interest on your interest. If you invest $1,000 at 10% per year, after year 1 you have $1,100. In year 2 you earn 10% on $1,100, not just $1,000. Over 30 years at 10%, that $1,000 becomes $17,449. The key insight: starting early matters enormously. $5,000 invested at age 25 grows to about $87,000 by age 65. The same $5,000 invested at age 35 grows to only $33,000. Time is your most valuable investing asset.

A 401k is offered by your employer. Contributions are pre-tax (reduce your income now) but withdrawals in retirement are taxed. Many employers match contributions — that is free money you should always take. 2025 contribution limit: $23,500. A Roth IRA is an individual account you open yourself. Contributions are after-tax but ALL growth and withdrawals in retirement are completely tax-free. 2025 contribution limit: $7,000. If your employer offers a 401k match, contribute enough to get the full match first, then max your Roth IRA.

The stock market is a marketplace where people buy and sell ownership shares in public companies. When you buy a share of Apple, you own a tiny piece of Apple. If Apple grows and profits, your shares become worth more. The S&P 500 is an index tracking the 500 largest US companies. Historically it has returned about 10% per year on average over long periods, though individual years vary wildly. The stock market has never failed to recover from a crash over a long enough time horizon.

Diversification means spreading your investments across many assets so that one bad investment cannot destroy your portfolio. If you put all your money in one stock and that company goes bankrupt, you lose everything. If you spread across 500 companies via an index fund, even if 50 companies fail, the other 450 keep growing. The easiest way to diversify: buy total market index funds that hold thousands of companies automatically. Never put more than 5-10% of your portfolio in any single stock.

The rule of 72 is a quick way to estimate how long it takes your money to double. Divide 72 by your interest rate to get the approximate years to double. At 8% return: 72/8 = 9 years to double. At 10%: 72/10 = 7.2 years. At 1% (typical savings account): 72 years to double. This is why the difference between a 1% savings account and a 10% index fund is enormous over a lifetime. Use this rule to quickly evaluate any investment.