Einstein reportedly called it the eighth wonder of the world. I call it a long-term investor's best friend. It's called compounding, and it can make you rich.

I never cease to be amazed by the power of compounding in an investment program. Indeed, seeing literally pocket change become millions over time is truly a remarkable thing, and many DRIP investors have witnessed this miracle first hand.

Earlier this year I spoke to a group of sixth, seventh, and eighth graders at a school near my office. These budding Warren Buffetts have been studying stocks the last few months. (I wish I had learned about stocks before I started shaving.)
Interestingly, the teacher told me the children wanted to learn how they could start investing with very little money ("Can you say B-U-Y-A-N-D-H-O-L-D-D-O-T-C-O-M?"). In preparing my speech, I struggled with the best way to present the benefits of investing. Then it hit me - show the kids the power of compounding.

To that end, I used the following example from my book, The Individual Investor Revolution: If a 10-year old sets aside just $16 per month (perhaps with a little help from mom and dad and the grandparents) in an individual stock or equity mutual fund and maintains this investment discipline for 50 years, he or she will have more than $277,000 at age 60 (assuming an average annual return of 10%). You may not fully appreciate the power of compounding in this example until you understand that the 10-year old invested only $9600 over the course of those 50 years to amass more than $277,000.

The kids seemed duly impressed, as they should have been. Remember: No hot stock tip from a friend, no fancy investment Web site, no slick financial adviser - nothing can add as much value to your portfolio as the power of compounding.

Compounding does not assure a profit and does not protect against losses in declining markets. Past performance is no guarantee of future results.