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.
|Started Investing At:||age 25||age 45|
|Number of Years||10 years||20 years|
|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.
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