The Famous "Two Savers" Example
So, Isaac invests $2,000 per year for 35 years, Caleb invests $2,000 per year for only 10 years, but Caleb ends up with more money? If this baffles you, it’s because you’ve never learned about two key resources in investing: compound interest and time.
Compound interest is like a snowball rolling down a hill; there is a multiplication effect as the surface area of the snowball grows. Likewise, the return on your savings exhibits the same effect over time. Not only do you earn a return on your initial and subsequent investments, but you also earn a return on your earnings! That’s the power of compound interest.
Time is on the other side of the equation. Caleb invested less than Isaac, but he invested earlier, leaving more time for that snowball to roll down the hill and grow.
“Unfortunately, most Millennials aren’t introduced to smart financial planning and investing guidance when it is most advantageous to them. The quicker they can learn and implement key financial concepts and investing strategies, the better off they will be for the rest of their lives,” said Matthew Savery, CFP®, CFA.
If you want to learn about more life-changing financial concepts and investing strategies, we'll be going into way more detail at our two Millennial Millionaire workshops, Monday, April 30 and Thursday, May 3. Click here to learn more.