Compounding Investment Returns

Whether you're investing for retirement, higher education, or a new home, knowing how quickly your investments may grow will help your decision-making process. Reinvesting, or compounding, your earnings can make a big difference in your investment account's growth.

What is Compounding?

Compounding occurs when you reinvest your earnings and/or dividends in the fund. You may not see the benefits of compounding right away but account growth can gain momentum as earnings begin to accumulate.

Saving Early is Important

Time can be on your side. Saving for retirement early might make a dramatic difference in reaching your financial goals. In the example below you can see the difference an early start makes. Remember, this is a simplified example.

Hypothetical Illustration

Mary Susan
Started Investing At: age 25 age 45
Yearly Contribution $5,000 $5,000
Number of Years 10 years 20 years
Total Contributions $50,000 $100,000
Rate of Return 6% 6%
Value of investment at age 65 $425,304 $206,661

This hypothetical example of compounding is for illustrative purposes only and does not represent any specific type of investment. It does not include the impact of expenses or fees, which would have reduced the results of the illustration.

Risk Disclosures

Neither State Farm® nor its agents provide tax or legal advice.

* Securities are distributed by State Farm VP Management Corp.
* Investing involves risk, including potential for loss.


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