DATA & FINANCE
Compounding &
Discounting
Explore how money grows through time and how future cash flows can be translated into today's value.
Compound Growth
Present Value
Monthly Investment
Inflation & Real Returns
The Rule of 72
A simple shortcut for estimating how long it takes an investment to double in value. Divide 72 by the annual rate of return.
Growth Over Time
THE IDEA
Why compounding matters
Compounding means that returns themselves begin generating returns. Instead of earning interest only on the original investment, each period's growth is added to the balance and can subsequently grow too.
Discounting works in the opposite direction. It takes a payment that will be received in the future and calculates what that payment is worth today, given a required rate of return.
The longer the time period, the more powerful the effect becomes. This is why relatively small differences in investment returns can produce very large differences in wealth over several decades.