I never thought I would actually post something about compounding and here I am, writing my second post. Well, first of all I thought it was such a well understood principle. As mentioned in my previous post, my wife recently came across an acquaintance who did not believe an example on compound returns she provided. The numbers were too startling.

If, however you are converted, this post titled “When Even The Power Of Compounding Can’t Save You” gives further insights on using compounding to reach a million dollars. It even contains Yet-Another-Einstein-Reference-To-Compounding (hereafter known as YAERTC). Besides the Einstein reference,  the post is good, especially at showing how reaching the first million, even using compounding, can take a while. Provided you can keep away from the money, compounding ensures that the second million arrives in your account up to six times faster.

The tables show how long it will take using different values for monthly contributions. The highest value, $1,291.66, represents the maximum monthly contribution Americans can make to certain tax-friendly investment accounts (401(k)s). With the current USD to GBP exchange rates and multiplying that value by 12, you get ~£7500, not far from the maximum amount you can contribute each year to a Maxi ISA here in the UK (£7000 this tax year, £7200 next tax year).