Regardless of where you choose to put
your money — cash, stocks, bonds, real
estate, or a combination of places — the key to saving for
The chart provides an example of how an
retirement is to make your money work for you. It does
investment grows at different annual rates of return
this through the power of compounding. Compounding over different time periods. Notice how the amount of investment earnings is what can make even small
gain gets bigger each 10-year period. That’s because
investments become larger given enough time.
money is being earned on a bigger and bigger pool of
You’re probably already familiar with the
money.
principle of compounding. Money you put into a savings
Also notice that when you double your rate of
account earns interest. Then you earn interest on the
return from 4 percent to 8 percent, the end result after
money you originally put in, plus on the interest you’ve
30 years is over three times what you would have
accumulated. As the size of your savings account grows, accumulated with a 4 percent return. That’s the power you earn interest on a bigger and bigger pool of money.
of compounding!
The real power of compounding comes with