When it comes to investing, time is one of your greatest allies. Why? When time joins forces with compound interest, your account value grows dramatically. Think of compounding as getting a return on your return.
Here’s an example:
- A 25-year-old wanting to have a $1 million nest egg at age 60 would need to invest $880.21 each month assuming a constant return of 5%.
- If that 25-year-old waits 10 years to start investing, he would need to invest $1,679.23 each month using the same assumptions.
- If he waited 20 years? That 45-year-old would need to invest $3,741.27 each month to accumulate the same $1 million by age 60.
The only difference between these three scenarios is the impact on the investment of combining time and compound interest. It can make a huge difference between retiring in comfort and, well...not.
If there’s anyone you care about that would like to better understand the benefit of compound interest, let’s connect.