Investing: The Miracle of Compound Interest

Here is an example, of the miracle of compounding. Let’s say there are two people who are 20 years of age.

At 20 years of age Person A invests $500 a month for 40 years at 7%. Person A’s balance at 60 years of age will be about $1.3million.

Now, Person B decides to wait until 30 years old to start investing $500 a month. At 60 the balance in Parson B’s account will be a bit over $600,000. Person A’s account is more than double.

For person B to match the balance of Person A, s/he would have to invest $1,000 to come close. In Person A’s situation the total investment of $240,000 was needed. In Person B’s situation an investment of $360,000 would be needed to come close to the final balance of $1.3 million.