Start Investing Immediately
Time is your greatest asset in investing for your retirement.
People who wait to begin putting aside money for their retirement must
contribute much more of their income than those who don't wait.
This is due to the power of compounding.
COMPOUNDING
Simply put, compounding means that you
earn interest from interest. That is, you
not only make money from the money you originally invested, but
also from the gains made by that investment.
For example, if you receive an 8% return on a $1,000 investment over a
one-year period, your total investment at the end of the year would
be $1,080. If you receive an 8% return on your investment the
following year, then your total investment, without putting in
another dime of your own money, would be $1,080 plus the return--$1,080 times
8%--or $1,166.
Examples of Compounding
The advantages of starting a savings/investment program early are best
shown by example. The table below shows how each
benefited from the power of compounding.
- Joan and Bill are the same age and are both working for the same employer.
- Joan started investing for retirement at age 25 and stopped making
contributions after ten years.
- Bill started investing for retirement at age 35 and stopped making
contributions at age 60.
As this table illustrates, Joan used time more effectively and was
able to accumulate more money for retirement even though she
contributed less than Bill over the 35-year period.
|
Joan |
Bill |
25 |
$1,000 |
0 |
26 |
$1,000 |
0 |
27 |
$1,000 |
0 |
28 |
$1,000 |
0 |
29 |
$1,000 |
0 |
30 |
$1,000 |
0 |
31 |
$1,000 |
0 |
32 |
$1,000 |
0 |
33 |
$1,000 |
0 |
34 |
$1,000 |
0 |
35 |
0 |
$1,000 |
36 |
0 |
$1,000 |
37 |
0 |
$1,000 |
38 |
0 |
$1,000 |
39 |
0 |
$1,000 |
40 |
0 |
$1,000 |
41 |
0 |
$1,000 |
42 |
0 |
$1,000 |
43 |
0 |
$1,000 |
44 |
0 |
$1,000 |
45 |
0 |
$1,000 |
46 |
0 |
$1,000 |
47 |
0 |
$1,000 |
48 |
0 |
$1,000 |
49 |
0 |
$1,000 |
50 |
0 |
$1,000 |
51 |
0 |
$1,000 |
52 |
0 |
$1,000 |
53 |
0 |
$1,000 |
54 |
0 |
$1,000 |
55 |
0 |
$1,000 |
56 |
0 |
$1,000 |
57 |
0 |
$1,000 |
58 |
0 |
$1,000 |
59 |
0 |
$1,000 |
60 |
0 |
$1,000 |
Total Contributed |
$10,000 |
$25,000 |
Total Value |
$99,211 |
$73,108 |
|
