The Power of Compounding
When you reinvest the income and dividends generated by your investments, you
may get the added benefit of compounding. That means you not only earn
money on your original investment, but you may also earn money on your
earnings. By starting your investment plan early, you can put the power of
compounding to work for you.
Increase Your Earning Power
The sooner you begin to save, the less you may need to put away each month
in order to reach your goals. For instance, in a hypothetical example of a
10% rate of return compounded annually, if an investor starts investing at
age 25 with a goal of accumulating $1 million by age 65, he or she may need
to invest only $141 per month to achieve that goal. However, if that
investor waited until age 50 to begin, he or she may need to invest $2,963
per month to reach the goal.
Watch Your Investment Grow
Reinvesting your investment earnings can make a big difference in your
investment results over time. Reinvested earnings may generate more
earnings and those earnings, in turn, can generate even more earnings.
Depending on interest levels, a $100,000 hypothetical investment could grow
to nearly $9.2 million over 40 years. That's the power of compounding.1
1 Calculation is based on an initial hypothetical $100,000 investment,
compounded annually, excluding any fees or expenses. It assumes that no
withdrawals were made and that all income was reinvested.