The Power of Compound Interest
Typical advice in the personal finance space is to start investing as early as possible. Let the power of compound interest, also known as the 8th wonder of the world, go to work. This advice usually applies to recent college graduates to encourage them to get money into retirement accounts as soon as possible. However, what if this was taken to an extreme? Let’s see what happens when little Johnny starts investing as a baby.
The Story of Bill, Susan, and Chris
For simplicity, let’s say this window opens at the age of 25 and closes at the retirement age of 65. This would allow 40 years for your money to grow. Using the visual below as an example, you can see the power of compound interest on display. The main takeaway from the chart is Susan ends up with more money than Bill even though she only invests for a period of 10 years while he invests for 30 years. They invest the same amount of money every year and the only difference is Susan starts investing at the age of 25 (and then stops after 10 years) and Bill starts at the age of 35 and invests until retirement. Continue reading “The Power of Compound Interest. Start Investing Young!”