Compounded Interest Makes You More Money With Long-Term Investing

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Long-Term Investments | Financial Planning | sapphire Wealth Advisory Group

Who Wants to Be A Millionaire?

Albert Einstein loved compounding interest. He once said, “He who understands it, earns it; he who doesn’t, pays it”. When one saves and invests, we know the returns are not necessarily guaranteed. While past performance is not indicative of future results, history has proven that over time your investments typically yield a higher return.

When it relates to long term investing, one may feel inclined to invest a nominal amount of money, and anticipate that it will be worth more in, let’s say, 10 or 15 years. In this situation the outcome might have a positive result. However, let’s assume that the same person put in a nominal amount of money into an investment account either monthly, weekly, or even daily. The long-term results would mostly likely appear more favorable than one who only invests once and anticipates a higher return than one who invests regularly.

The outcome is such that using historical estimations, that if someone invests $100 a week for 40 years, while the average return is between 7%-9% a year1, the outcome may result in having a 7-figure portfolio. Taking it a step further, let’s assume the age of which one starts this investment regiment is when one typically graduates college at around 22 years old. At this point, they may get their first job whereby they could possibly afford segmenting $100 a week. If this concept comes to fruition, this individual will have more than $1,000,0002 before they hit 65 years old! That means the longer they longer they maintain the same mantra of saving and investing very well may yield very favorable results.

When it comes to financial planning, the investing element many times involves how things are framed. For example, $100 a week may sound like a long of money. However, it is really less than $20 a day, which may equate to the amount spent on coffee, lunches, or even snacks on a daily basis. Sometimes these acts and disciplines are merely a result of perception.

For hypothetical purposes only – does not represent a specific investment or investment strategy. Individual results will vary

  1. Source: tradingninvestment.com – Avg. Return of S&P 500 between 1997 and 2017
  2. Source: bankrate.com – Assumption: Depositing $100 a week for 40 years with an average annual rate of return of 7.3% compounded annually. For hypothetical purposes only – does not represent a specific investment or investment strategy. Individual results will vary

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