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Time: The Rocket Fuel๐Ÿš€๐Ÿš€ Of Compounding.

Jun 30, 2023

Imagine two individuals eagerly planning for a dignified retirement at the age of 65. Let's introduce them as Early Bird and Late Bloomer. Early Bird kicks off their retirement journey by investing $500 per month from the youthful age of 25, concluding this effort at 35. On the other hand, Late Bloomer begins saving only at the age of 35 but persists for a solid 30 years until reaching 65. Both wisely invest their money in a diversified portfolio, reaping an average annual return of 8%.

Now, let's see what happens to their retirement savings over time. Brace yourself for the astounding figures:

Early Bird, at age 65, amasses a staggering nest egg of $874,640. Meanwhile, Late Bloomer lags behind, with a retirement fund of only $679,699. 

That's an astonishing difference of nearly $200,000!

But wait, there's more! To add a touch of irony, Early Bird invested a mere total of $60,000, while Late Bloomer put in $180,000. How did this enormous discrepancy arise, you ask? It's all thanks to the magical ingredient: time! The rocket fuel๐Ÿš€๐Ÿš€ of compounding.

Compounding occurs when your investment earnings are reinvested, allowing them to generate interest on their own. Consequently, the longer your money remains invested, the more time it has to experience the wonders of compounding.

In this case, Early Bird had a head start of 10 years, granting their money an additional decade to compound. That's precisely why their savings flourished so much more than Late Bloomer's.

So, what does this enlightening tale mean for you? If you find yourself in your twenties, the time to embark on your retirement investment journey is now! Even if you can only set aside a modest amount each month, it will accumulate over time. And remember, the earlier you start, the more time your money has to compound and grow. If you've already surpassed your twenties, well, it's time to pick up the pace and make some moves!


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