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9900 Nicholas St.
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Omaha, NE 68114

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Doug Thomas

402-397-5440

 

The Power of Compounding

There's never a better time than now to save. The earlier you start investing, the longer you take advantage of the power of compounding.

Here's an illustration of that power*:

• Let's say you start investing $100 a month at age 28 and do that for 10 years. If your investments grow 7 percent a year on average, the $12,000 you put away will turn into $144,500 by age 70.

• Someone else your age waits until age 38 to start putting away $100 a month. That person can invest every year until age 70 and still not end up with as much money as you did by investing between age 28 and 38! (The total would be $132,261 on a $38,400 investment.)

What if you're past 38 and still haven't started saving for retirement? There's still time to catch up. It just takes more work.

Let's say you start saving for retirement at age 40. If your investments grow 7 percent a year, you'd have to invest about $440 a month ($5,293 a year) to end up with $500,000 by age 70.

What if you wait until age 50? You'd have to save more than $1,000 a month ($12,196 a year) to end up with the same sum.

And if you'd started investing at 22? You'd hit the same total with a monthly investment of less than $120.

This is a hypothetical example for illustrative purposes only and is not intended to represent any specific investment. It does not consider any costs associated with investing. The example is based on compounding a fixed rate of return over a long period of time. However, most investments generate fluctuating returns and an investor may make or lose money. Seeking higher rates of return involves greater risk.