The following is an excerpt from Carla Fried | February 10, 2017 | Barrons.com |
Warren Buffett’s net worth is roughly 7 million times that of the average millennial. But you are richer than Buffett when it comes to one thing.
Time is literally money when you invest. The longer you have money invested, the more your investments can cash in on the concept of compound growth. Your 50 and 60-something parents would kill to have the investing runway that is still in front of you.
To really get your head around the power of compound growth, you need to see the numbers. Let’s say you have $1,000 to invest. And it earns 6% this year. At the end of the year your account is worth $1,060. ($1,000 x .06%) Then your account gains 6% again in year two. If you think that gets you to $1,120 you’re short-changing yourself. You earned 6% on your bigger balance of $1,060, not the original $1,000. That means you end year two with $1,123.60.
Granted, the extra $3.60 doesn’t seem like a game changer. But when you keep at this for decades, compound growth becomes your investing bae. As your balance grows, the impact of what you earn on that balance is magnified. In fact, in just 11 years, your annual earnings are bigger than your original investment. Eventually the earnings on your earnings become bigger than your original investment.
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