The Earlier You Invest, the Larger Your Nest Egg

It’s the “rolling snowball” effect: The earlier you begin saving for a financial goal — such as higher education costs or retirement — and the longer you leave your money at work for you, the more exciting the numbers get. Through compounding, you’ll continue to earn income on money you have invested.

For example, imagine an investment of $10,000 at an annual rate of return of 8 percent. In 10 years, assuming no withdrawals, your $10,000 investment would grow to $21,600 and in 20 years $46,600. In 25 years, it would grow to $68,500 — a 47-percent gain over the 20-year figure. After 30 years, your account would total $100,600. (Of course, this is a hypothetical example and does not reflect the performance of any specific investment.)

This simple example also assumes that no taxes are paid along the way, so all money stays invested. That would be the case in a tax advantaged college savings account like the Michigan Education Savings Program.

While you should review your portfolio on a regular basis, the point is that money invested early and left alone offers the potential of a significant return over time. With time on your side, you don’t have to go for investment “home runs” in order to be successful.

– Timothy Wyman, CFP, JD

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