Starting to Invest Young is Powerful - Compound Interest Calculator
When it comes to investing, one of the biggest advantages you can have is not a high income or a large starting balance. It is time.
Someone who starts saving at age 18 gives their money decades to grow and compound. Compounding means that your investment earns returns, and then those returns can begin earning returns of their own.
For example, imagine an 18-year-old invests $1,000 per year and earns an average 7% annual return. If they continue until age 65, they could accumulate roughly $350,000, even though they contributed less than $50,000 themselves.
The earlier you start, the more of the final balance can come from investment growth rather than your own contributions.
Waiting Can Be Expensive
Starting at 18 instead of 28 may not feel like a big difference when you are young. But those first 10 years have the longest amount of time to compound.
That means someone who waits until their late 20s may need to save considerably more each year to eventually reach the same result.
The lesson is simple: you do not need a lot of money to get started. You need time.
Even a small amount from a summer job, part-time job, or first full-time paycheck can be meaningful when it has 40 or 50 years to grow.
Try It Yourself
Use the compound interest calculator below to change the starting age, annual savings amount, and investment return.
Try starting at age 18, then change the starting age to 28 or 38. The difference is a simple way to see why starting early can be one of the most valuable financial decisions a young person makes.
Investment returns are not guaranteed. The examples above are for educational purposes only and assume a constant rate of return.
GuidePoint Financial Planning - A Reston Virginia Financial Advisor - Compound Interest Calculator
Ryan Phillips, CFA, CFP® is the founder of GuidePoint Financial Planning. He is passionate about helping busy families plan, save, and invest for their financial future. Contact him today if you are interested in learning more about the benefits of working with a fee-only (no-commission) financial planner.
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All material above is for educational purposes only and is no way a recommendation to buy or sell investment securities. You should always review investment and tax changes with qualified professionals.
