Schwab MoneyWise ®
Schwab MoneyWise®

Benefits of Compound Growth

Put time on your side.

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You will end up saving more by investing less money over a longer period of time. Start as early as possible and watch your money work for you.

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.

Compounding makes a lifelong difference

Earnings at age 67 after investing $1,200 per year.

Chart showing that compounding makes a lifelong difference. Three investors put in $1,200 a year. The investor that invested over the longest period of time from age 18 to 67, made far more money than the other two. Chart showing that compounding makes a lifelong difference. Three investors put in $1,200 a year. The investor that invested over the longest period of time from age 18 to 67, made far more money than the other two.
Chart showing that compounding makes a lifelong difference. Three investors put in $1,200 a year. The investor that invested over the longest period of time from age 18 to 67, made far more money than the other two. Chart showing that compounding makes a lifelong difference. Three investors put in $1,200 a year. The investor that invested over the longest period of time from age 18 to 67, made far more money than the other two.
  • Investor 1
    Invests $1,200/year from age 18 to 28 (invests for 10 years)
  • Investor 2
    Invests $1,200/year from age 40 to 65 (invests for 25 years)
  • Investor 3
    Invests $1,200/year from age 18 to 67 (invests for 49 years)

For illustrative purposes only. Hypothetical example assumes a consistent annual growth rate of 6% compounded monthly. Inflation, taxes and expenses are not factored in. Not meant to predict or project the performance of any specific investment product.

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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.

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