Benefits of Compound Growth
Put time on your side.
Investing isn’t just about how much money you have to invest. It’s also about how much time
you have to invest it. That’s because of the power of compound growth.
A simple definition.
Compound interest makes your money grow faster because interest is calculated on the accumulated interest over time as well as on your original principal. Compounding can create a snowball effect, as the original investments plus the income earned from those investments grow together.
The more time, the more growth potential.
If you saved $50 a month for 10 years and never invested it or earned any interest on it, you'd have $6,000 after 10 years. But if you invested $50 a month for 10 years and earned 8% each year on your investment, you would end up with about $9,150. In other words, you'd have 50% more money.
The chart below shows another example of the power of compounding.
As you can see, Investor 1, who started at age 18 but only invested for 10 years, accumulated more at retirement than Investor 2, who invested for 25 years. However, Investor 3, who invested from age 18 to age 67, accumulated significantly more than either of them.
The example presented is hypothetical in nature and not intended to predict or project the performance of an actual investment. Charges, expenses, and taxes, which would be associated with an actual investment and which would lower returns, are not reflected.
The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.