Compounding is boring on purpose

The question arrived on a Sunday evening, which is when most money questions seem to arrive. "I have put a little aside every month for three years," it said. "Everyone talks about compounding as if it were magic. Mine looks like the money I put in, plus a little. Is the magic just a story?"

It is not a story. But the honest answer is slightly uncomfortable, so let me give it in full. One thing first: I cannot see your accounts and would not judge them from here even if I could, so nothing below is a view on what you hold or what you should do. It is about why the feeling you describe is so common that I would be more surprised not to hear it.

Compounding simply means that growth begins to earn growth of its own. That part is true, and it is the whole idea. What the cheerful charts leave out is how long the beginning lasts. Take the plainest possible example: money growing at a steady seven per cent a year, a rate chosen because the sums are easy, and one that no real market promises to anyone. At that pace a sum takes roughly ten years to double.

Now put yourself in year three of saving the same amount each month. Your pot is mostly your own deposits. The growth during that whole year might come to about two months of your saving. Real, but small enough that a single generous birthday could hide it. The curve everyone talks about is there. It is just lying almost flat on the ground.

Run the same plain arithmetic forward and something changes around the tenth year: a year's growth starts to match a year of saving. After that it overtakes it, and keeps overtaking it. That far end is the part people quote. What they rarely say is that the only road there runs through the flat part, and the flat part is long, and dull, and exactly where most people get bored, or frightened, or clever.

Clever is the dangerous one. In the flat years, when the curve seems to be doing nothing, faster ideas look very attractive, and a bad month looks like proof the slow idea has failed. In my years of watching people and markets, the usual way the curve gets broken is not a poor choice of what to own. It is an interruption: stopping, starting again, swapping horses. Every restart puts you back at the flat beginning, and the flat beginning is the one part you have already paid for.

The curve everyone talks about is there. It is just lying almost flat on the ground.

My father planted a mango tree when I was small. For four years it was, in his words, a stick with opinions. It put out a few leaves, lost them in the dry months, and gave no sign of ever being a tree. My mother wanted the space for chillies. He kept watering it, a can every evening before dinner, and the one thing he never did was dig it up to look at the roots. In its seventh year it fruited, badly. In its tenth it fed the street.

I think of that tree whenever someone tells me compounding is not working. Three years in, you are standing in the stick years, and the stick years are not evidence that nothing is happening. They are what it looks like when something is happening underground, slowly, at a rate too small to admire. The boredom is not a flaw in the process. It is very nearly the price of admission, and you are already paying it.