How Warren Buffett Used Compounding to Build His Wealth

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Forward this to someone in their 20s or 30s. Seriously. It might change their financial future.

I'm not exaggerating. What you're about to read is the exact strategy Warren Buffett used to become one of the wealthiest people on the planet, and it's something you can start replicating today, even if you're starting with just a few hundred dollars.

Here's the wild part: more than 90% of Warren Buffett's net worth came after his 60th birthday. Let that sink in. He started investing at age 11, compounded at roughly 20% annually for over six decades, and didn't become obscenely wealthy until he was already collecting Social Security.

That's not a story about getting rich quick. It's a story about time, patience, and letting your money do the work.

Albert Einstein supposedly called compound interest the "eighth wonder of the world." Whether he actually said it or not doesn't matter because compounding is the single most powerful force in personal finance. Understanding it is the difference between financial freedom and spending your entire life stressed about money.

What Is Compounding, Really?

Compounding is when your money starts making money, and then that money starts making money. You're earning returns on your returns.

Let's say you invest $10,000 and earn 8% in year one. You now have $10,800. In year two, you don't just earn 8% on the original $10,000 — you earn it on $10,800, giving you $11,664. Every year, the snowball gets bigger and rolls faster.

The Math That Changes Everything

The compound growth formula looks intimidating, but the results are mind-blowing:

$$ A = P(1 + r/n)^{nt} $$

You don't need to memorize it. Just look at what happens to $10,000 at 8% annual returns:

• After 10 years: $21,589

• After 20 years: $46,610

• After 30 years: $100,627

Same money. Same return rate. But triple the time equals nearly five times more wealth. That's exponential growth.

Start Early, Even If It's Small

Time is your unfair advantage. The earlier you start, the less you need to invest to reach your goals.

Here's a comparison that blows people's minds:

Investor A puts away $300/month from age 25 to 35, then stops completely.

Investor B starts at 35 and invests $300/month until retirement at 65.

At 8% annual returns, Investor A — who only invested for 10 years — ends up with more money than Investor B, who invested for 30 years.

The difference isn't discipline. It's time.

Never Interrupt the Process

To maximize compounding, reinvest everything: dividends, interest, capital gains. Every dollar you pull out isn't just a withdrawal; it's cutting off years of future growth.

Think of it like planting a tree. You wouldn't dig it up every few months to check the roots. You water it, leave it alone, and let it grow.

Watch Out for the Wealth Killers

Compounding is powerful, but three things can destroy it:

Inflation — erodes purchasing power over time

Taxes — chip away at your returns unless you use tax-advantaged accounts (401(k), Roth IRA, HSA)

High-interest debt — credit cards compound against you at 20%+ annually, making banks rich while keeping you broke

Use low-cost index funds to minimize fees. Every percentage point in fees is compounding you'll never see.

The Buffett Blueprint

Warren Buffett didn't get lucky. He understood compound interest before most people and stayed invested for over 60 years. He didn't try to time the market. He didn't panic sell during crashes. He just kept reinvesting and let time amplify his wealth.

The fact that 90% of his fortune came after age 60 proves this isn't about being a genius stock picker. It's about consistency and patience.

Your Move

Compounding isn’t magic. It’s math plus discipline. The key isn’t timing the market; it’s time in the market. Start today. Invest consistently. Reinvest everything. And let the eighth wonder of the world work for you instead of against you.

Want to go deeper? I break down investing strategies, portfolio management, and wealth-building tactics on my YouTube channel through my regular live streams.

Also be sure to subscribe to my newsletter where I will also be sharing these insights. Whether you’re just starting out or already building your portfolio, these sessions will give you actionable strategies you can implement immediately. Your 60-year-old self will thank you.

— Sergio Avedian​