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
Compounding occurs when your earnings are reinvested back into your original investment to continue earning. Compounding can create a snowball effect, as the original investments plus the income earned from those investments grow together over time.
The more time, the more growth potential
If you put away $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 that same $50 a month for 10 years and you earned 8 percent each year on your investment, you would end up with about $9,150. In other words, you'd have 50 percent more.
The chart below shows another example of the power of compounding.
As you can see, Investor 1, who only invested for 10 years (but who started at age 18), earned more at retirement than Investor 2, who invested for 25 years. Of course, Investor 3, who contributed consistently for the longest period of time, surpassed the others.