In short
- With compound interest, gains also produce gains.
- The effect becomes more visible over time.
- On the stock market, no regular return is guaranteed.
Simple or compound: the difference
Take 10,000 dirhams and a made-up return of 5% a year, constant and with no fees.
| Period | Simple interest | Compound interest |
|---|---|---|
| 1 year | 10,500 MAD | 10,500 MAD |
| 10 years | 15,000 MAD | 16,289 MAD |
| 20 years | 20,000 MAD | 26,533 MAD |
With simple interest, the gain stays at 500 dirhams a year. With compound interest, the gain is calculated each year on a larger amount.
The formula
Final amount = starting amount × (1 + rate)number of years
Example: 10,000 × 1.0510 ≈ 16,289 dirhams.
The rule of 72
To estimate how long an amount takes to double, divide 72 by the annual rate. At 6% a year, that gives about 12 years. It is an approximation, only useful to get a rough idea.
The link with the stock market
For a share, the effect can come from a rising price and from reinvesting dividends. But reality differs from the table: prices go up and down, a year can be negative, and a company can cut its dividend. The calculation above is therefore not a forecast.
Fees and inflation matter too
Let us compare over 20 years, again with made-up figures:
| Annual net return | 10,000 MAD after 20 years |
|---|---|
| 5% | 26,533 MAD |
| 4% | 21,911 MAD |
A single point of difference a year, due for example to fees, clearly changes the result. Inflation also reduces what this amount can buy. If prices rise 2% a year, a 5% gain is a real gain of about 3%.
Frequently asked questions
Does compounding also work the other way?
Yes. Fees and losses also add up over time, which reduces the final amount.
Does this calculation guarantee a result?
No. It assumes a constant rate, which does not exist for shares.
This article is for information and educational purposes only. It is not investment advice or a recommendation to buy or sell any security. Investing in shares involves a risk of capital loss. Check figures against official sources (Casablanca Stock Exchange, AMMC) and consult a licensed professional. Read the full disclaimer.
