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What is compounding and why is it so important in decisions such as comparing investments, loans, debt payoff?

What is compounding and why is it so important in decisions such as comparing investments, loans, debt payoff order.

Public Comments

1. Compounding means you don't take money out of a fund; you leave the interest in there to earn more interest. For example, if I have $100 and I earn 10% in the first year, I have $110. If I don't add any more money, but leave that interest in the account, the next year at 10% I earn $11. This is the power of compounding. Most people get rich by saving early, then leaving the money alone for 20 years or more - compounding takes care of the rest.
2. I found the perfect article for you: http://greenarrowinvestments.com/retirerich.aspx This explains compounding very well. (i think)