Compound growth: why starting early beats starting big
Two savers, the same rate, very different results. The difference is time, and it's the cheapest advantage you'll ever have.
Compound growth means your earnings start earning too. In the first years the effect is small. Later, it does most of the work, which is why the years you give your money matter more than almost anything else.
A tale of two savers
- Ava invests $200 a month from age 25 to 65, at a 7% yearly return: about $525,000.
- Ben invests the same $200 a month from 35 to 65, at the same 7%: about $244,000.
- Ava put in $24,000 more than Ben but ended with about $281,000 more.
The 7% here is an example, not a promise. Real returns go up and down, and some years are negative. The lesson holds either way: extra years of growth are worth more than extra dollars later.
The rule of 72
Divide 72 by a yearly return to estimate how many years money takes to double. At 6%, about 12 years; at 9%, about 8. It works in reverse for debt too: a card balance at 24% doubles in about three years if you don't pay it down.
Try your own numbers in the Stack Your Future calculator and change only the years. It's the fastest way to feel this.