Time is On Your Side

Albert Einstein is reported to have said ...

“The most powerful force in the universe
is compound interest”

The Nobel Prize winner was referring to the interest that a person can earn on interest. 

The U.S. Securities and Exchange Commission website gives statistics on saving and investing for students such as the Rule of 72; which tells how long it takes for our investment to double in value.  For example, if you’re expecting a 6% rate of return on your investment annually, divide 72 by 6, this equals 12.  Therefore it will take approximately twelve years for you to double your money.

What does Pizza have in common with Investing?  Consider this example from the website referenced above:

Here's another way to look at compound interest.  How much does a slice of pizza cost?  Would you believe nearly $65,000?  If a slice of plain pizza costs $2.00, and you buy a slice every week until you're old enough to retire, you'll spend $5,200 on pizza.  If you give up that slice of pizza and invest the money instead, earning 8% interest compounded every year for 50 years, you'll have over $64,678.87.

Getting the picture?

Let's say that Maria is 22 years old and her brother Marcus is 32 years old.  They both estimate a 6% rate of return and will each invest $100 per month until they are each 65 years old.

Without calculating taxes or inflation:

Maria would have over $250,000, while Marcus will have just over $132,000.  Maria has over $118,000 more because she started earlier.

TIME is on YOUR SIDE!

Here are a few other articles that you might enjoy:

Want to Be a Millionaire? You Can! by Selena Maranjian as posted on The Motley Fool website.