If there is one “technical thing” investors should know about investing, it’s the power of compound interest. In the rush to understand short-term developments impacting investment markets regarding the economy, interest rates, profits, politics, etc, and in recent times coronavirus its often forgotten about. It can be the worst nightmare of borrowers as interest gets charged on interest if it’s not regularly serviced. But it’s the best friend of investors. The well-known Australian economist Dr Don Stammer refers to it as the “magic” of compound interest. I often refer to it, but given its importance, this note updates one I wrote a few years ago looking at what it is, how it works, various issues around it and why investors often miss out.

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