Unlock the power of compounding
By: Buddy Brand
As simple as it may seem, compounding can play a key role as you pursue a bright financial future. Compounding, simply put, is when an investment generates earnings on reinvested earnings. In your retirement accounts, where you’ll accumulate funds over the course of years or even decades, it can have a powerful impact.
Consider the following scenario: You inherit $10,000 from a relative. Knowing that you need to begin saving for your retirement, you purchase a hypothetical investment vehicle offering a 5 percent annual return. In the first year, you earn $500 in interest. Your investment is now worth $10,500. In the second year, you accrue interest not only on your original $10,000, but on the $500 you earned in the prior year as well. So, at the end of year two, your balance will be $11,025.
This process would continue for the remainder of the time that you keep your funds invested, assuming you achieve the same hypothetical return.
The longer you keep your money invested, the faster it may grow, which is a clear indication of the importance of starting to invest as early as possible. When it comes to investing, procrastinating can be costly. For more information on how the power of compounding can help you as you pursue your long-term goals, contact an investment professional today.
Article provided by Frank “Buddy” Brand, Senior Vice President/Investments with Stifel, Nicolaus & Company, Incorporated, member SIPC and New York Stock Exchange, who can be contacted in the Florence office at 1325 Cherokee Road or by phone at (843) 665-7599 or toll-free at (866) 850-6995.