Understanding Compound Interest (Einstein's 8th Wonder)

Compound interest is "interest on interest." Investing $5,000/year for 30 years at 7% annual return grows to $543,000 — $185,000 from your contributions and $358,000 from compound growth. This is why starting early matters so much.

Average Returns by Asset Class (10-Year Historical, Canada)

• Canadian Stocks (TSX): ~8-10% annual
• US Stocks (S&P 500): ~10-12% annual
• Bonds: ~4-5% annual
• GICs/HISA: ~4-5% annual
• Balanced portfolio (60/40): ~7-8% annual

Impact of Inflation

Real returns (after inflation) are what matter. At 8% nominal returns and 2% inflation, your real return is 5.88%. Canadian inflation averaged 2% historically but hit 5-6% in 2022-2023. Always factor inflation into long-term planning.