THE POWER OF COMPOUNDING
WHICH IS SWEETER? If you buy a $1 candy bar every day, it adds up to $365 per year.
Compounding transforms your working money into a state-of-the-art, highly powerful income-generating tool. When your investments generate earnings, those earnings are added to your account and reinvested. Now you have a larger pool of invested money—your contributions plus your earnings—and the opportunity to generate even more earnings on those invested funds. Increasing the amount you are contributing increases the potential benefit you may realize from compounding. The longer your money is invested, the more you may benefit from the power of compounding. Years of regular savings and contributions, investment earnings, and compounding can help you build the balance you’ll need to see you through your retirement years.
If instead you invested that $365 at the end of every year earning 8%, it
would grow to $2,244 after five years. By the end of 30 years, you would have $45,728 !
Over time, even a small amount of savings can add up to big money and help you achieve your financial goals. That’s the power of “compounding”— a sweeter return!
STARTING EARLY IS ESSENTIAL
The above figures were calculated by compounding interest daily for 5 years based upon $1 invested every day.
Let’s assume Joe saves $100 a month for 30 years beginning at age 35. Michelle also saves $100 a month, but only saves for 10 years beginning at age 23. Both Joe and Michelle earn an average of 8% and plan on retiring at age 65.
$250,000 $200,000 $150,000 $100,000 $50,000 $0
Contributions Earnings Calculation based on 8% compounded monthly
S
Joe
Michelle
Who will have more in their retirement account? Michelle’s balance at age 65 will be $236,000 compared to Joe’s balance of $149,000. Why? Because of the impact of compounded earnings! Even though Michelle contributed less, she started early and received the benefit of compounded earnings on her investments.
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