The beauty of compounding A Q&A with Matthew Bartolini, CFA, CAIA
The first few weeks of marathon training can be frustrating. The distance-day runs feel longer than expected, your pace may not improve much, and it's hard to see the progress from one workout to the next. If you’ve run one, maybe you know the feeling.
But you keep showing up, logging miles, and trusting the process—and almost without noticing, things begin to change. Runs that once felt difficult become manageable. You recover faster. You cover longer distances with less effort. Months of consistent training turn small daily improvements into meaningful progress.
Building wealth works much the same way. Your gains may seem modest at first, but steady contributions and disciplined investing can compound over time into something powerful.
That's a lesson Matthew Bartolini, Global Head of Research Strategists at State Street Investment Management, has seen reinforced throughout his career. Matthew leads a team that conducts product research, analyzes markets, and develops market outlooks. And after years of digging through the data, his conclusion is clear: you don’t need perfect timing or numerous complex strategies, just consistency and patience.
We sat down with Matthew to understand how compound investing works and why time is your most powerful ally.
Q: Let’s start with the basics. Why is compounding so powerful?
Matthew: At its core, compounding is pretty simple. You earn returns on both your original investment and on the returns that are then generated. In other words, your earnings earn earnings.
But compounding doesn’t happen overnight. As the ultimate long game, it relies on two key things: an initial investment and time. Assume two investors follow the same investment pattern and each earn the same hypothetical annual return. If one starts at age 25 and the other waits until age 35, the 25 year-old would have 10 additional years for potential compounding by age 65 (Figure 1). It’s this simple: the earlier you start, the more time you give your money to build.
That’s the power of compounding. It can turn one small action into meaningful long-term results.
Q: What if investors added to their initial investment on a regular basis?
Matthew: Sure. Let’s say you make an initial $1,000 investment and then add $100 every month for 30 years. This disciplined approach, known as dollar-cost averaging, involves investing a fixed amount at regular intervals regardless of market conditions. And just to be clear, dollar-cost averaging does not ensure a profit or protect against loss in declining markets. Moreover, investors should consider their ability to continue investing during periods of market volatility. With that said, there can be potential benefits of continuously committing capital to your account.
Now for this $100 a month hypothetical example, assume the money is invested in an S&P 500® Index fund and earns a constant annual return of 10.92%, the annualized rate of return for the S&P 500 since 1990 through September 30, 2026.1 At the end of 30 years, the hypothetical investment would be worth approximately $269,000.2
Here’s how the math shakes out: You would have contributed $37,000, while approximately $232,000 of the ending value would come from hypothetical investment growth.
Your contributions created the foundation. Continuing to invest increased the amount with the potential to compound, while the assumed return and long-time horizon contributed to the hypothetical ending value. Of course, actual market returns vary, and investments may lose value, particularly over shorter periods.
You can see how setting aside money month after month—and not just when it feels convenient—can pay off over time.
Q: So, what’s the big idea that you want investors to take away?
Matthew: Building wealth is a marathon, not a sprint. If you want to consider putting the power of compounding into action, here’s my view:
Every year your money is at work is a year you’re closer to achieving your financial goals. Starting small today beats starting big later.
Market swings can make it tempting to pause or change course. But compounding needs time to work. Regular contributions, whether through automatic investments or a set schedule, can help keep your plan on track and your money working toward your goals.
When you reinvest dividends and interest, your future growth builds from a larger base. That simple step gives compounding an added boost.
In the early years, progress can seem slow. But over time, growth begins building on growth, and the effects of compounding become more powerful. Those later years can have the greatest impact—but only if you give your investments enough time to get there.
Compounding comes down to keeping it simple. Investors want to get lucky on rare rocket ship stocks or lottery ticket speculative bets. That’s hard to do repeatedly and not the reality for most of us. Long-term wealth is built over time, through regular investing, diversification, and patience.
Q: What if someone is starting later in life? Is it too late?
Matthew: Not at all. Compounding still works, but depending on your goals you may need to adjust your approach. That could mean contributing a bit more each month, extending your time horizon, or staying invested longer.
The big takeaway here, and it’s an old adage, is that time in the market matters more than timing the market. Waiting for the “perfect” moment to invest usually costs more in missed opportunity than it saves in caution.
While nothing is guaranteed, history shows us that investors must withstand some down periods to generate positive returns over time. Put simply, those returns are the reward for staying invested through periods of uncertainty. That means staying in the market for the long haul. Even small, consistent actions, like increasing your 401(k) contributions, setting up automatic contributions, and reinvesting dividends, can turn steady effort into meaningful long-term growth.
Compounding isn’t a secret. It’s a long-term investing principle, a tool anyone can use. It rewards any investor willing to start, stay, and let time do its work.
Q: Is there anything else you'd like investors to know about the power of compounding?
Matthew: Not to be so repetitive, but the biggest thing to remember is that compounding can be especially powerful when it starts early. The more time you give your money to grow, the greater the potential impact.
That’s one reason parents and grandparents may be interested in Trump Accounts. These tax-advantaged accounts are designed to help eligible children begin investing early, giving contributed assets more time to potentially benefit from compounding. Investment growth will depend on contributions, market performance, fees, and other factors.
Of course, it's not just about dollars and cents. Starting early can also help build positive investing habits. When young people see how regular contributions and long-term investing work together over time, they learn one of the most important lessons in investing: wealth is often built through consistency and patience, not quick wins.
The biggest takeaway is this: whether you're investing for yourself or helping a child get started, time can be your most valuable ally. The earlier you begin, the more time compounding has to work in your favor.
For America’s youngest investors, getting there starts here
Trump Accounts are helping families invest for their children from day one, providing low-cost exposure to America's leading companies. SPYM—the lowest-cost US-listed S&P 500® ETF at just 0.02%—is the default investment for Trump Accounts.