Compound Interest Examples: What if You Starting Investing as a Baby?

Compound Interest Examples

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 and you started investing for retirement as soon as you were born? Let’s take a look at a few compound interest examples.

The Story of Bill, Susan, and Chris

For simplicity, let’s say this investment 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.

Compound Interest (Blog Post 9)

Chart assumes 7% growth rate. Souce: business insider via

Think about that for a minute. This really is a huge difference. Bill has to invest for TWENTY more years than Susan with his late start, and he will still end up with less money at retirement.

I have seen dozens of compound interest examples similar to this one associated with the above graph. However, I’ve seen very few that recommend starting to save for retirement even earlier. After additional research, the Google machine returned a few articles discussing starting investing as a baby, though similar content is rare.

A More Extreme Compound Interest Example

Back to the graph above, let’s add someone else into the mix along with Susan, Bill, and Chris. Let’s say Johnny was born in the year 2018.

Upon Johnny’s birth, someone in his family made ONE $5,000 lump sum payment into a retirement account. For consistency, assume a growth rate of 7% and a retirement age of 65.

By making ONE payment of $5,000 when Johnny is just a tiny baby, he would have nearly $500,000 at the age of 65. Little Johnny’s money would be worth a multiple of 100 times just by placing it in an account and letting it sit there making an annual return of 7 percent.

Compound Interest 2 (Blog Post 9)

To reiterate, Bill would have to make 30 payments of $5,000 starting at age 35 to have roughly the same amount as Johnny’s ONE payment.

I get it that this is an oversimplified example since it doesn’t factor in inflation. For example, the purchasing power of $5,000 in the year 1982 (35 years earlier) would have been $1,946. With that being said, this still demonstrates the amazing power of compound interest. Even an investment of $1,946 would be worth nearly $200,000 at the age of 65.

More Thoughts on These Compound Interest Examples

Why isn’t compound interest discussed more broadly? Especially investing even before entering the workforce. Well, I’m not sure though I can speculate.

  • Babies don’t read Business Insider articles (or personal finance articles in general). Therefore, the audience for personal finance articles is usually adults anywhere from recent college graduates to retirees.
  • It’s weird to think about your newborn baby getting to retirement age. It just is.
  • Similarly, 65 years is a really long time away and most parents only have financial responsibility for their children through college.
  • Most parent won’t live to see their children turn 65. Nobody wants to think about that.

To summarize, if you have a few thousand dollars laying around and a child on the way consider throwing that money into a brokerage account and let it grow until your little bundle of joy reaches retirement age. I know that most people don’t have that kind of money available, and that really wasn’t the point of this blog post. The purpose was to show a few compound interest examples of how important it is to start investing in retirement early, weather that is at age 1 or age 25. If a person takes only one thing away from the personal finance world, it should be an understanding of these compound interest examples. They are so powerful!

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  1. I LOVE reading about compounding! That’s what excites me and I wish I started early… and when I mean early, I’m talking about… idk, like 12, 13, 14 years old early?? Look at Warren Buffett! He invested in his first stock when he was 11 years old. He started hustlin’ as a little boy and saved all that money and invested it.

    These are things I wish I started when I was a kid… I know, it sounds so unreasonable, but even working part-time and investing those small savings at such a young age is HUGE because of compounding (exactly everything you mentioned in this post).

    Yeah, and I guess this topic isn’t discussed more broadly because money, in general, is a taboo… even ’til today, my family never likes talking about money…

    Overall, excellent post! Too bad we can’t start investing on the day we are born hahaha…

    1. We can’t invest as a baby, but educated parents with some extra money could. It doesn’t have to be $5,000. Any money invested now will grow exponentially. With my 3 year old, we cashed out his piggy bank and bought a few stocks using the Robinhood app. Not sure if they will hold until his retirement (see, that is weird to think about) but we plan to keep them for a while and will add on with gift money.

      1. Bingo. “Educated parents with some extra money could.” One of a myriad of motivations for getting our own financial act together, so that we are better equipped to set our kids up well, not just with tangible money but with the head knowledge early on to understand financial planning.

  2. What would we be without compound interest??? Don’t answer, I don’t even want to think about it…

    I started my compond interest wheel a couple years ago (around age 22), and I kick myself in the butt for not starting when I was 18. I don’t beat myself up too much about this though because like you said, we aren’t taught this at a young age. My fiancee and I are already at a pretty fast track in terms of our finances, but I can only imagine if I knew know what I did at 18!

    Great post!

    1. Thanks! You are way ahead of the game by starting at 22. Great job! I wasn’t even thinking about investing at 22.

  3. $5,000 —> $500,000 is a staggering return. It really is remarkable how much it grows over time.

    You can basically buy a little peace-of-mind for your kid early in life, giving them the comfort to know that a pretty big chunk of his/her retirement is taken care of. And for a relatively small initial investment.

    Who knows, it could free just enough paycheck cash flow up for your kid later on in life to pursue that business he/she has always wanted to get off the ground. And they may just have the guts to do it, knowing they have a cushion growing bigger and bigger all by itself in the background. It’s super fun to think about all the possibilities a couple grand now could grow into.

    Thanks for the reminder how important saving and investing for my son is right now!

    1. And that is with a relatively conservative rate of return! Compound interest is pretty amazing. Thanks for your comment!

  4. I love this post. I keep telling my husband that the day our now toddler daughter earns her very first paycheck, hopefully in her early teens, if we are equipped to do so, we will plop one lump sum into an IRA for her. Somewhere between $1000-5000 would be great. A lot of people don’t realize that if you have worked so much as a single day in your life you are eligible for an IRA (i.e. a toddler that does a photo shoot for a baby catalog). Stay at home parents can and should have an IRA of their own, separate from their working spouse too 🙂 Great post about compound interest!

  5. Great tip. I’m not sure if I’ve thought far enough ahead about the considerations of an IRA for a teen worker. Thank you for sharing!

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