You probably already understand the importance of investing for your future. But did you also know that the earlier in your life you start investing (twenty is not too young!), the bigger your benefits will be down the road? The secret lies in the effects of compound interest*. The following scenario could convince you.

Person A:
At age 20 Person A starts investing $2,000 per year and does so for 5 consecutive years (for a total investment of $10,000). After that, Person A invests nothing until retirement at age 65. Assuming an annualized rate of return of 6% each year, Person A’s $10,000 investment will be worth $122, 921 at retirement.

Person B :
At age 40 Person B starts investing $2,000 per year, and does so for 25 years until retirement at age 65 (for a total investment of $50 000). Assuming an annualized rate of return of 6% each year, Person A’s $50,000 investment will be worth $116,313 at retirement.

Compound Interest* At Work.

Person A
Total Investment : $10,000
Value of Investment at age 65 : $122,921

Person B
Total Investment : $50,000
Value of Investment at age 65 : $116,313

*Compound Interest Explained:
Compound interest is the interest you earn on principal PLUS interest, which is then added to the principal. Example: if you invest $1000 @ 10%, after one year you have $1100. For year 2, the calculation is done on $1100 rather than $1000. This means in year 2, your $1000 will be worth $1210. Year 3 interest will be paid on $1210, and so on.

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