Anyone in the world of personal finance or financial advising should try to ingrain the concept of compound interest into as many people and clients as they possibly can. But why? Compound interest allows your money to grow over time, and the earlier and more frequently you invest, the power of compound interest will be an even larger advantage for you. Since the S&P 500 started having 500 companies in 1957, the average annual return has been approximately 8% through 2018. So based on history (and we will be slightly conservative in our estimate), if you invest $1,200 every year in an S&P 500 index fund with a growth rate of 7% for 40 years, you’ll have $256,331 after your fortieth (40th) year of saving. That’s only $100 per month, which most people can do if they decide to adjust their spending and prioritize saving for the future. As your income increases, so should the amount you save. So lets look at a couple examples of how compound interest grows your money. Below are examples of saving $1,200, $3,000, and $6,000 per year. You can click on each header to bring up the the full tables for the three summary tables below the header, and you can click on each chart to bring up a full table for that summary table. At the bottom, there are links to the full tables for 5%, 7%, and 10% growth. Here is another page showing why compound interest is so powerful over time.
Investing $1200 per year ($100 per month)
Investing $3000 per year ($250 per month)
Investing $6000 per year ($500 per month)
