A recent X post by Professor Aswath Damodaran, one of the world’s leading authorities on valuation, reminded millions of the quiet power of compounding.
Here’s an example he uses, which we have converted to ZAR.
What R10,000 becomes
Damodaran often uses a simple R10,000 investment growing at a realistic 8% annual return (after inflation and fees):
- After 10 years: R21,589
- After 20 years: R46,610
- After 30 years: R100,627
- After 40 years: R217,245
- After 50 years: R469,016
The growth happens late
The key insight: the biggest growth happens in the later years. From year 40 to 50, the investment grows by R251,771 – more than the entire amount after 30 years.
Here’s what it looks like on a graph:
Compound grow that 8% a year
The professor’s point was simple but profound: time is the investor’s greatest ally. The real magic happens in the later years as the base on which returns are earned grows exponentially.
Why investors give up too early
Damodaran emphasised that many investors underestimate this effect because the early years show slow progress.
“Compounding looks boring for a long time… and then it explodes,” he noted. This psychological challenge leads many to abandon good strategies too early or chase quick returns that ultimately destroy wealth.”
What fees do to it
He also warned against high fees and unnecessary trading, which quietly erode the compounding effect. A 1% annual fee might sound small, but over 40 years it can reduce your final wealth by more than 30%.
For South African investors, the lesson is particularly relevant given our volatile markets and high inflation environment.
Consistent investing in quality businesses or diversified index funds, with minimal interference, has historically been one of the most reliable ways to build long-term wealth.
Damodaran’s message is ultimately optimistic: you don’t need to be brilliant or take huge risks. You need patience, discipline, and time on your side. The miracle of compounding rewards those who start early and stay the course.
