Compound interest

Compound interest is interest calculated on both the original amount you invested and on the interest already added to it. Each period your balance grows a little faster than the last.

Over a long horizon — say 30 years of investing into an index fund — compounding does most of the heavy lifting. A 25-year-old contributing $200 a month at a 7% return ends up with more money than a 35-year-old contributing $400 a month at the same return.

The takeaway: time in the market beats timing the market.