Compound interest looks simple on the surface; the formula is: Final return = Principal × ((1 + Rate of return))^Time. But few truly understand it.

For example, gaining 1% daily sounds insignificant, right? But over a year, 1.01 raised to the 365th power equals 37.8 times. In other words, your assets or abilities could become nearly 38 times larger after a year. Conversely, if you decline by 1% daily, 0.99 raised to the 365th power is about 0.03—that is, almost zero after a year. This is the brutal truth of compound interest.

**Why do most people always miss out on the benefits of compound interest?**

The key is "not seeing results in the early stages." Like lotus leaves in a pond, they cover half the pond in the first 29 days, then suddenly cover the entire pond on the 30th day. Before the critical point arrives, you see no returns, and most people give up at this stage.

Investing is the same. Some people can't wait and exit early, missing the period of exponential growth. But what about Buffett? He held Coca-Cola stock for decades. Although the stock price fluctuated, through dividend reinvestment and long-term holding, his final returns skyrocketed.

**How to truly leverage compound interest? Three factors determine everything**

First is the size of the principal. The larger the principal, the higher the starting point—that's a fact. But ordinary people can also make up for the gap by investing a fixed amount monthly in index funds, gradually accumulating wealth.

Second is the stability of the return rate. Don't chase the thrill of earning 100% in one year and losing 50% the next. A strategy with an average annual return of 10% is far more effective in accumulating wealth over the long term than those with big ups and downs.

Third is time. The longer the time, the more powerful the effect of compound interest. For example, with a principal of 1 million yuan and an annual return of 10%, how much will it be after 20 years? That’s real growth.