The Power of Compounded Returns
Compounding is a powerful force. When returns are reinvested, the investment’s value can grow exponentially over time.
- Consider a hypothetical $10,000 investment earning 10% a year—the S&P 500 Index’s approximate annualized return since 1926. Over a 45-year working lifetime (age 20 to 65), $10,000 would have grown to $728,905.
- At a 10% annual return, an investment doubles in value about every seven years. So, the earlier you start investing, the larger the potential compounding effect.
- For example, investing $10,000 at age 20 would result in a much higher end value at age 65 than investing the same amount at age 30 or 40.
Compounding can help turn a small investment into substantial wealth. But to harness that power, the sooner you start, the better.
David Rappaport, CFP®
David is the Co-Founder and Chief Investment Officer of Rappaport Reiches Capital Management. He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances. Please connect with David below. He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.