Power
of Compounding Interest
The impact of compound growth on regular savings
plans is a major factor in planning. It is documented
that when Albert Einstein was asked to nominate
the most powerful force on earth, he responded
- "COMPOUND INTEREST".
It's easy to procrastinate
when it comes to initiating a long-term investment plan.
However, the sooner you begin, the more likely it is that
the plan will succeed.
The image above illustrates the effects of compounding
over time. Investor A began investing in stocks
at year-end 1986, investing $2,000 each year for
10 years. After 10 years, Investor A stopped contributing
to the portfolio but allowed it to grow for the
next 10 years. The $20,000 outlay grew to $229,300
by year-end 2006.
By starting early, and thereby taking advantage
of the effects of compounding interest, Investor
A accumulated $123,600 more than Investor B, while
still investing $20,000 less.
Note: The data assumes reinvestment
of income and does not account for taxes or transaction
costs. An investment cannot be made directly in
an index. Past performance is no guarantee of
future results.
Source: Stocks-Standard
& Poor's 500?, which is an unmanaged group
of securities and considered to be representative
of the stock market in general
