The power of compounding

Okay, let’s talk about the power of compounding. On this page you will learn why starting sooner is always best. The longer you have been in the market, the more time your investments returns can be reinvested, causing your profits to also have profits year after year. I’ll explain this in the examples below. For the examples I’ll use two different investors, Brandon and Eric.

Example 1: Brandon starts his work career and is now going to begin saving cash and purchasing things like a vehicle, home, etc. etc. He has an average salary at the time of writing of $66,622. He is 22 years old so still has a lot of energy and time left. After a few years of working, he decides he is ready to buy a nice car he has wanted since he was younger.

He now drives his black BMW M4, pretty sweet car! A few more years roll by and he is 27 years old and decides he is ready to purchase a home! He puts a down payment on a home and now has a cozy and spacious place to live in.

5 years later he comes across a video on youtube about stock investing and it sparks his curiosity! He learns about investing for the first time and continues to do research for a while and realizes the best way to invest is into a low cost index fund. At this time he is 32 years old.

Oh how time flies right on by. He opens an account and starts purchasing shares every paycheck. Just for example purposes lets use $400. Every week he purchases $400 worth of shares and he sets a goal to keep investing to see where his investment account could grow to by the time he is 45 years old.

13 years roll by and he wakes up one day and decides to look at his investment account. He is happy to see that his investment account has grown to $490,000! WOW, that’s a good amount and definitely on the path to financial independence.

Example 1 chart below.

Example 2: Eric, 22, begins his work career and is also making $66,622 a year. Eric has been interested in investing since he was 18 years old and decides to start investing immediately after he gets his first check! $400 of shares every week into the S&P 500. Through his career he also buys a home, and decides to buy a modest car. 23 years roll by and he is now also 45 years old.

Still he continues to invest every week and decides to look at his investment account. $1,596,000 is what he sees as the value of his portfolio. Holy moly guacamole he says as he realizes that his early investing has really paid off! Eric is earning two times as much from his investment portfolio than he is from his career now.

Example chart 2 below.

Now that! That is the power of compound interest, and it shows how a little can go a long way. Please remember this little story of Brandon and Eric when you decide to start investing. Just investing 10 years earlier can help you reach financial independence faster and get you closer to a rich, free life.