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A rough doubling calculation, the cost of starting late, and the damage of breaking it midway
Published by The Retail Trader · AUG 09, 2026 · Features
Compounding sounds like a worn-out idea because it is written about everywhere. But we systematically underestimate its effect, because the human mind thinks in straight lines and compounding does not run in a straight line.
Divide 72 by your annual return, and the answer tells you in roughly how many years the money will double. At 12%, about 6 years; at 8%, about 9 years.
This is an approximation, not an exact formula — but it is enough for working things out in your head, and that is its whole benefit.
A large part of compounding comes in the final years, because that is when the base is largest. So the early years look small, and skipping them proves the most expensive.
A common observation: the person who starts ten years earlier is often ahead of the person who later puts in double the amount. The difference is not in the amount, it is in the years.
Compounding has three conditions, and all three get broken:
• The money has to stay invested — withdrawing midway resets the curve.
• Returns have to stay positive — one large loss eats years of compounding.
• Cost has to be low — each year's cost compounds too, in the opposite direction.
• And most important — it needs time. There is no shortcut to compounding, and whoever is selling a shortcut is not selling compounding.
The same maths runs in reverse as well. A 2% cost every year, the cost of every trade, and large drawdowns — all three make compounding run backwards.
So reducing losses and costs often has more effect than raising returns. It is boring, but its maths is far more solid.
Compounding does not mean the same return will come every year. In a real market returns go up and down, and in between there are years when nothing happens or there is a loss.
The real condition for benefiting from compounding is exactly this: staying in the game even in those years. This is why asset allocation and risk control are as important as returns when talking about compounding.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.