The Power of Time & Compounding
No matter what your age, there is no better time to invest for your future. Time is one of the most important factors in the potential success of your investments. This is because time and compounding may work together to build momentum for your investments.
Start investing early and let compounding help
With deferred compensation, starting early is one of the keys – the earlier you start, the more you can save. Even a small contribution has a chance to grow when time and compounding work together. Please remember that investing involves market risk, including the possible loss of principal.
What is compounding? Compounding is the process of continually adding any earnings you might receive to the amount you contribute (principal) and then reinvesting them to create more potential earnings. The more time your money has to earn, the more opportunity for compounding.
To give you an illustration of the power of time and compounding, consider the investment life of twin sisters, Sue and Mary, who are saving for retirement.
Sue and Mary
Sue started investing at age 30 and invested $2,000 each year for 10 years. After that, she stopped investing completely.
Mary waited until she turned 40 to start investing for her retirement. She invested $2,000 each year until she turned 65 for a total of 25 years.
Mary invested for 15 more years than her sister. Assuming they both earned an 7% annual rate of return, who will have more money at age 65?
If you answered Sue, the early investor, you are right!
Sue only put in $20,000, but her account grew to $160,474 by retirement. Mary, who invested a total of $50,000, ended up with $135,353. The difference is due to time and compounding. Time and compounding. Sue began earlier and gave her money more time to grow.
Do not ignore the impact that compounding and time may have on your investments. Although it is never too late to start saving, waiting can be expensive. Use time to your advantage. Start now.
This illustration is a hypothetical compounding calculation. It is not intended to serve as a projection or prediction of the investment results of any specific investment. It assumes a one-time investment of $5000 at 7% interest at the beginning of the year. No fees, taxes, or withdrawals are reflected in this example; however, if they were reflected the results would be lower. Investments are not guaranteed and return will vary, particularly for long-term investors. Depending on your underlying investments, your rate of return may be higher or lower.
Investing involves risk, including possible loss of principal.
Waiting may have a big impact. Use this calculator to see how waiting to invest could affect your investments. See what various contribution amounts could look like in the future.