Albert Einstein once famously stated that compound interest is the eighth wonder of the world, and I agree with him. It is very important to understand and capitalize on compound interest when looking at your goals and planning for the future. When you invest money, you earn a rate of return. This rate of return is the change in the amount of money you have, in the form of a percentage, over a given period of time. As time passes, your money will begin to compound. This means that the growth of your money over the last period is now also earning a rate of return. For each period, the sum of money that you have earning a return will be larger, assuming you have earned a positive return. This concept is one of the most important reasons to start investing early. Below is an example of three individuals that chose different means of investing.
As you can see the outcomes of these individuals varies greatly. If you choose to wait to start, you will have to sacrifice more that if you start start now. Even if you can’t contribute large sums of money, get the power of compound interest on your side now and start investing.