An investment that generates a return of 7% per year does not grow by the same amount each year. Instead, it grows by an ever-increasing amount. Today's returns generate additional returns tomorrow. This phenomenon, better known as compounding, is widely regarded as one of the most powerful drivers of long-term wealth creation.
What makes compounding so effective, and why do so many investors still fail to make the most of it?
"}},{"componentType":"sectionTitle","title":"Why so many people miss out on this advantage"},{"componentType":"paragraph","richBody":{"value":"Compounding causes growth to accelerate over time. In the early years, however, investors tend to notice very little difference. It is only after a longer period that the effect becomes truly visible, as wealth begins to grow at an increasing rate through the return-on-return effect. Time is therefore often described as an investor's greatest ally. It is no coincidence that the well-known saying goes: time in the market beats timing the market.
And therein lies the paradox. Almost everyone understands the concept of compounding, yet far fewer benefit from it in practice. The reason is that the effect builds gradually, while investors are naturally drawn to the day-to-day fluctuations of the market. A market correction of 10% feels painful and immediate; the benefit of remaining invested for a few extra years is far less tangible.
"}},{"componentType":"sectionTitle","title":"Trying to time the market rarely pays off"},{"componentType":"paragraph","richBody":{"value":"As a result, investors sometimes sell at the wrong moment, wait for a "better entry point", or leave their money sitting in a savings account for extended periods. That is unfortunate, because by doing so they interrupt precisely the process that can give their wealth a powerful boost over the long term.
"}},{"componentType":"sectionTitle","title":"Compounding comes with no guarantees"},{"componentType":"paragraph","richBody":{"value":"This does not mean that compounding is a miracle cure. Investing involves risk: markets can fall, and past performance is no guarantee of future returns. Moreover, compounding only works when investments generate positive returns in the first place.
What investors choose to invest in also matters greatly. A poorly constructed portfolio will benefit little from compounding. After all, the effect amplifies both positive and negative outcomes. Patience alone is therefore not enough. A carefully constructed, well-diversified portfolio, regular contributions and a long investment horizon remain essential.
"}},{"componentType":"sectionTitle","title":"The biggest pitfall: delaying the start"},{"componentType":"paragraph","richBody":{"value":"Nevertheless, many investors devote considerable time to deciding when to invest. Historically, a different question has often proved more important: how much time do you actually spend in the market? Starting a year later may seem harmless, but consistently postponing investments can make a significant difference over the long run.
To fully benefit from compounding, the most important step is often simply to get started, even if it is with a low-cost, broadly diversified index fund. In that sense, investing differs from many other financial decisions, where extensive deliberation is usually rewarded. Those who start early gain an advantage that is exceptionally difficult to make up later, even through higher contributions.
"}},{"componentType":"sectionTitle","title":"Why compounding is so powerful"},{"alignedImage":{"position":"bottom"},"componentType":"paragraph","richBody":{"value":"Viewed in this light, compounding may be the least spectacular force in financial markets, and that is precisely why it is so often underestimated. Many investors search for the next great success story or attempt to predict market movements. Yet for those seeking to build wealth, discipline is often more valuable than foresight. Investing regularly, remaining patient and staying the course through market volatility has historically proved more rewarding than chasing the perfect moment to invest.
Even when early results appear modest and patience is tested, the same mechanism can eventually become the primary engine of wealth creation. For investors, the most important question is therefore not how much return they can achieve next year, but how much time they are willing to give their investments to work on their behalf.
"}},{"componentType":"linkList","iconTitle":{"title":"Read more"},"textLinks":[{"text":"Today's Markets","url":"/en/personal/investing/market-news-and-views/todays-markets"},{"text":"Our Perspective Overview","url":"/en/personal/investing/market-news-and-views/our-perspective-overview"},{"text":"Market Outlook","url":"/en/personal/investing/market-news-and-views/market-outlook"},{"text":"More news and views","url":"/en/personal/investing/market-news-and-views"}]},{"componentType":"sectionTitle","title":"Good to know"},{"componentType":"paragraph","richBody":{"value":"Investing involves risks and costs. The value of your investment may fluctuate. Past performance is no guarantee of future results. Read more about the risks of investing.
This publication has been prepared on behalf of ING Bank N.V. and is intended for information purposes only. ING Bank N.V. obtains its information from sources deemed reliable and has taken the utmost care to ensure that the information on which it based its views in this publication was not incorrect or misleading at the time of publication. ING Bank N.V. does not guarantee that the information it uses is accurate or complete. The information contained in this publication may be changed without any form of announcement. Copyright and data file protection rights apply to this publication. Data from this publication may be reproduced provided that the source is stated. ING Bank N.V. has its registered office in Amsterdam, commercial register no. 33031431, and is regulated by the Dutch central bank De Nederlandsche Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM). ING Bank N.V. is part of ING Groep N.V.
"}}]},"hasMacro":false,"id":"bbdd1a7f-3626-4bca-b3ca-0fe751c4bf6d","localeString":"en-GB","mainHeaderZone":{"authorInfo":{"authorName":"Erik Kuipers","image":{"altTextNL":"Erik Kuipers","extension":"jpg","original":"https://assets.ing.com/m/753d00771ff6dfa8/original/ING_Investment_Office_Erik_Kuipers_1.jpg","transformBaseUrl":"https://assets.ing.com/transform/f9fe6d4a-97aa-43d7-b22e-68c43bd4908a/ING_Investment_Office_Erik_Kuipers_1","type":"image","width":3500},"intro":"ING Investment Office","jobTitle":"Investment specialist"},"backLink":{"textLink":{"text":"Market news and views","url":"/en/personal/investing/market-news-and-views"}},"componentType":"editorialHeader","coreHeader":{"body":"It almost sounds too good to be true: money that earns money all by itself. Yet that is exactly what happens when investment returns are automatically reinvested.","headerImage":{"altTextNL":"Boys holding a jar","extension":"jpg","original":"https://assets.ing.com/asset/d7ded9f5-660f-4edc-a1f9-bef35b66d594/Boys-holding-a-jar.jpg","transformBaseUrl":"https://assets.ing.com/transform/d7ded9f5-660f-4edc-a1f9-bef35b66d594/Boys-holding-a-jar","type":"image","width":6000},"subtitle":"Our perspective on","title":"Money that Makes Money"},"date":"2026-08-24","readingTime":3},"publishDate":"2026-08-24T11:43:56.614+02:00"}}