Advice
“The big money is not in the buying and selling but in the waiting.” – Charlie Munger
We all learn about handling our personal finances in different ways and at different times in our lives. I was recently asked, “What is one valuable piece of financial advice you would have given your younger self?”, I answered, “The power of compound interest.”
The earlier you start saving matters far more than saving more later in life. With that knowledge, I would have focused on products offering compound returns much sooner.
What is Compound Interest?
Compound interest is the interest calculated on the initial principal as well as on the accumulated interest over time.
An easy example of compounding is a savings account, money market account or a certificate of deposit (CD). Note that compounding interest is not to be confused with simple interest, which is only earned on the original (principal) amount. The main advantage of compounding will be the accrued interest is also earning interest.
Why Does Compound Interest Matter?
Patience is not just a virtue, it is a strategy. The longer your money remains invested, the more opportunity compounding will have to demonstrate its ability.
While returns can vary depending on the investment and market conditions, the compounding effect becomes more powerful over time, making early and consistent investing a key strategy for long-term financial growth.
To see this in action, imagine you invest $500 every month ($6,000 a year) with an annual return rate of 8%. Here’s how your total could look by age 65, depending on when you start:
Start at 25: $1,565,201
Start at 35: $684,731
Start at 45: $276,902
These figures demonstrate that waiting 10 years before investing can cut your potential future balance by more than half.
Calculations made with Compound Interest Calculator/ Investor.gov
In Conclusion
Time is your greatest ally when it comes to building wealth. With vision and patience, compounding can transform consistent contributions into exponential growth.
If you’ve experienced the power of compounding in your own financial journey, share this article with younger family members or friends. The sooner they start thinking of investing, the sooner compound returns can start working for them.
Don’t forget to make an appointment with your financial professional for a financial review to make any necessary adjustments to your financial plan. Billie Treber can help you set financial goals; contact her by calling (574) 246-4869 or send an email to [email protected].
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.