Compounding is often called the eighth wonder of the world. It is one of the most powerful forces in personal finance because it allows money to grow on itself over time. But there is one condition investors often miss. Compounding needs enough capital to work on.
A high return on a small investment base may look impressive in percentage terms, but it may not create meaningful wealth in the early years. A higher savings rate, even with moderate returns, can help investors build the base on which compounding works harder later.
