What is the Power of Compounding?
Technically compounding is interest on interest. If your stock interest is realized daily, you’re going to get interest on interest at a faster basis and your money will grow quicker. That’s really the technical aspect of compounding. When people talk about compounding, often they’re really thinking about time; if you started investing at age 25 versus age 35, you’ll have so much more money at 65, let’s say. The reason for that is really how money grows. If your money doubled every 10 years – which is pretty easy to do – if you started with $1 at 25, by 35 you’d have $2, at 45 you’d have $4, at 55 you’d have $8 and at 65 you’d have $16. However, if you started at 35, you really only have $8, because you have one less double period. Just by starting 10 years earlier, you’ve actually doubled the amount of money you’re going to have at 65. That’s just the value of time and how time can really help your money grow. It’s a less technical way when many times people are thinking about the pow
