THE POWER OF COMPOUNDING
When you reinvest the income and dividends generated by your investments, you may get the added benefit of compounding. That means you not only earn money on your original investment, but you may also earn money on your earnings. By starting your investment plan early, you can put the power of compounding to work for you.
Increase Your Earning Power
The sooner you begin to save, the less you may need to put away each month in order to reach your goals. For instance, in a hypothetical example of a 10% rate of return compounded annually, if an investor starts investing at age 25 with a goal of accumulating $1 million by age 65, he or she may need to invest only $141 per month to achieve that goal. However, if that investor waited until age 50 to begin, he or she may need to invest $2,963 per month to reach the goal.
Watch Your Investment Grow
Reinvesting your investment earnings can make a big difference in your investment results over time. Reinvested earnings may generate more earnings and those earnings, in turn, can generate even more earnings.
When considering a Systematic Investment Plan, you should note that programs of periodic investment do not assure a profit or protect against a loss in a declining market. You should also consider your ability to continue investing during declining market periods.
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