Why Compound Interest Matters More Than You Think

March 27, 2026
Jamie Woodhead, Wealth Advisor

Compound interest is often called the most powerful force in investing — and for good reason. It allows your money to earn returns not only on your original contributions, but also on the growth those contributions generate over time. In the early years, progress can feel slow, which is why many investors underestimate its impact. However, as time passes, the compounding effect accelerates, turning consistency into momentum. This is why starting early matters so much: even modest contributions made in your 20s or 30s can grow meaningfully over decades, often outpacing larger contributions made later in life with less time to compound.

History reinforces this lesson. Over long periods, the Canadian equity market — commonly measured by the S&P/TSX Composite Index — has delivered solid long‑term returns despite short‑term volatility, market cycles, and economic shocks. While annual returns vary widely from year to year, investors who stayed invested benefited from both market growth and the compounding of returns over time. The takeaway is simple: you don’t need to start big to build wealth. You need to start early, stay disciplined, and give compounding the time it needs to do the heavy lifting.

This chart is provided for illustrative purposes only and is based on hypothetical assumptions, including a 7% annual rate of return. It does not represent actual performance and does not guarantee future results. Returns may vary. This content is not intended as investment advice. The information presented is derived from sources believed to be reliable; however, its accuracy and completeness are not guaranteed. Also the opinions expressed do not necessarily reflect those of NBF.

National Bank Financial - Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF), as well as a trademark owned by National Bank of Canada (NBC) that is used under license by NBF. NBF is a member of the Canadian Investment Regulatory Organization (CIRO) and the Canadian Investor Protection Fund (CIPF), and is a wholly-owned subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX: NA). The information contained herein has been prepared by Jamie Woodhead, a Wealth Advisor at NBF. The opinions expressed do not necessarily reflect those of NBF. NBF is not a tax advisor and clients should seek professional advice on tax-related matters, including their personal situation. Please note that comments included in this letter are for information purposes only and are not intended to provide legal, tax or accounting advice. The comments reflect the opinion of their author only and may not reflect the views of NBF. Financial Planners are authorized to act in the field of Financial Planning. They exercise their duties for National Bank Financial Inc., a financial planning firm. We work closely with the Taxation, Retirement and Estate Planning Team from National Bank Trust, made up of multidisciplinary experts who provide knowledge and advice that complement our service offering. These experts assist us in providing the best solutions for your personal finances related to taxation, retirement and estate planning.

 

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