The Power of Compounding
Your investments today will grow each year until you start withdrawing your funds for retirement.
If you invest $1,000 today, it will be almost $125,000 in forty years, if it earns 1% per month. That is the power of compounding.
If you invest a small amount each month, the results can be dramatic. Look at these examples. They assume an annual return of 12%. Compounding monthly it is 1% per month.
Monthly:
| Amount |
Years |
Total
|
$250
$250
$250
$250 |
40
30
20
10 |
$2.8 million
$875,000
$250,000
$60,000 |
|
$500
$500
$500
$500 |
40
30
20
10 |
$5.9 million
$1.75 million
$500,000
$115,000 |
These figures are rounded up to whole numbers for easy comparison. They do not include any reduction due to inflation. Inflation eats into the amount that is earned. Each dollar buys less when the costs for goods and services increase every year.
